3.2 Cost and Revenue

Question 1

What is the equation used to calculate “profit”?

Answer 1

profit = revenue - costs

Question 2

What are variable costs?

Answer 2

Variable costs vary directly with production.

directly, so it has a relationship with output

Question 3

What are some examples of variable costs?

Answer 3

• materials
• packaging
• delivery
• piece rate labour

Question 4

What are fixed costs?

Answer 4

Fixed costs are those that do not vary directly with production.
In the short run, there are things that have to be paid for, not depending on the output.

Question 5

What are some examples of fixed costs?

Answer 5

• Rent and mortgage payments
• Salaries
• Machines and other capital equipment

Question 6

What are “semi-variable” costs?

Answer 6

Some costs can be seen as both variable and fixed elements.
For example electricity can be seen as a fixed cost (eg. for light) but can also be a variable cost (amount of hours machines run)

Question 7

What are direct costs?

Answer 7

Direct costs are those that can only be attributed to a single part (directly linked to the sale of the goods or the provision of the service, such as a shop employee)

Question 8

What are indirect costs?

Answer 8

Indirect costs carry out activities with will affect all the branches, and these will be different in every company. (EG. a nationwide advertisement campaign)

Are not directly linked with the sale of a good or the provision of a service.