3.3 Costs & Revenue

Question 1

Define costs

Answer 1

the expenses incurred by a business in its operations, can be classified as fixed, variable, direct or indirect.

Question 2

Define fixed costs + state examples

Answer 2

costs that don’t change in short run regardless of how much is produced. They must be paid regardless of production levels (they may change in the long run)

• Examples: rent, insurance, machinery leasing, management salaries.

Question 3

Define variable costs

Answer 3

Costs that change with the level of output. They ⬆️ as production ⬆️

• Examples: raw materials, sales commissions, wages for production staff.

Question 4

Define total costs and its formula

Answer 4

sum of all costs incurred by a business in production , including fixed & variable costs
• Formula: TC = TFC + TVC

Question 5

Define average costs

Answer 5

– The cost per unit of output produced
• Formula: AC = TC ÷ Q (where Q = quantity produced)
• Also calculated as AC = AFC + AVC (where AFC = average fixed cost, AVC = average variable cost).

Question 6

Define direct costs + examples

Answer 6

Costs that can be directly linked to a specific product, service, or business activity.
• Examples: raw materials for production, wages of factory workers, insurance for a taxi business.
• Can be fixed (e.g., rent for production facilities) or variable (e.g., raw materials).

Question 7

Define indirect costs + examples

Answer 7

Costs that are not directly linked to the production of a specific g./s.
• Examples: rent for a head office, marketing expenses

Question 8

State the formula for total revenue

Answer 8

Total Revenue = Price x Quantity sold

Question 9

What are revenue streams + state examples

Answer 9

Different sources of income for a business

Eg:
• Sales revenue (main source for most businesses).
• Subscription fees (e.g., Netflix).
• Advertising revenue.
• Licensing fees.
• Dividend income from investments.
• Interest earnings on savings.
• Government grants or subsidies.