3.2 Flashcards
Semi Variable costs
Costs that have both fixed and variable cost part
- Electricity - Fixed cost per month + per unit used
- Sales Salaries - e.g. Car salesperson
Basic salary (Fixed) + Commission per car sold (Variable)
The more they sell the more they earn
Direct Costs
Costs that can be clearly identified with production of each unit of production or a project
Cost of meat in hamburgers
Cost of steel in certain cars
Indirect
Costs that cannot be clearly identified with each unit of production
Costs that do NOT lead to production, but they must be paid to run the business
AKA Overheads
- Cost of cleaning a school or business (does NOT lead to production of lessons)
- Promotional expenditure in a supermarket (advertisement of the business as a whole)
- Marketing
Why are costs important?
One of the factors of Profit
Determines pricing decisions by Marketing (eg. Cost + pricing)
Comparisons over time
Set budgets for the future
Revenue
The income received from the sale of a product
Total revenue = price x quantity sold
Profit = Total Revenue - Total Costs
Or Total Revenue - Fixed Costs - Variable Costs
Total Revenue
Profit
Total Costs
Total revenue = price x quantity sold
Profit = Total Revenue - Total Costs
Total costs = Fixed Costs - Variable Costs
Revenue Streams
The income a business gets from different business activity
- The most common is selling goods and services
Businesses can also generate revenue elsewhere
- Advertisement on its website
- Transaction fees
- Selling T-shirts with their business name on it
Fixed Costs
Costs that do not vary with output in the short run
E.g. Rent, Property tax
Variable Costs
Costs that increase as output increases
E.g. input costs for a restaurant - ingredients, gas for cooking
