3.2: Costs and Revenues

Question 1

Define cost

Answer 1

what you have to give up in order to gain something
- expenditure for production

Question 2

Define price

Answer 2

The amount demanded by seller from buyer

Question 3

Differentiate cost vs price

Answer 3

Price includes the markup

Question 4

Outline the two types of cost

Answer 4

• fixed cost
• variable cost

Question 5

Define fixed cost

Answer 5

• costs that doesn’t change with the sales or level of production
• e.g.: rent, management salary, tax

Question 6

Define variable cost

Answer 6

• costs of production that change according to sales and level of production
• e.g.: make 3 cakes? pay 20 for ingredients make 4 cakes? pay 30.

Question 7

Differentiate variable cost and fixed cost graphs

Answer 7

Question 8

Define total cost

Answer 8

TC = TOTAL variable cost + TOTAL fixed cost

Question 9

Outline what is a semi variable cost and example

Answer 9

• Elements of fixed and variable cost
• But becomes variable after exceeding a certain level of output
• e.g.: Nightclubs, after a certain cost, you have to pay additional.
• e.g.: Bonuses after selling a lot for (salesman’s salary)

Question 10

Define direct cost

Answer 10

• costs that are directly related to product itself
  
  • -e.g.: cost of lemon for lemonade

Question 11

Define indirect cost

Answer 11

• Part of the fixed cost
• No fixed connection to product.

Question 12

Give the formula for Total Variable Cost

Answer 12

TVC (tot. var. c.) = AVC (average varcost) x Quantity

Question 13

Why is airplane food a fixed cost

Answer 13

They always stock assuming full capacity and the excess food are perishable so they have to factor that in cost

Question 14

Define revenue

Answer 14

• The amt of money that comes in the company
• aka profit (but net profit —> deducted the costs)

Question 15

Give the revenue formula

Answer 15

Price x Quantity sold

Question 16

Give the average revenue formula

Answer 16

Total revenue / Quantity

Question 17

Outline the revenue streams

Answer 17

• Advertising (e.g. celeb endorsements)
• Transaction fees
• franchise cost and royalties
• sponsorship
• subscription fees
• dividends
• donation

Question 18

Define what is a break-even analysis

Answer 18

• determines how much you should be selling not to have profit or any loss

Question 19

Why do we need a break even point?

Answer 19

• To determine the minimum selling price/quantity to be sold;
• so that your price is not lower than your cost
  
  • if cost = 80, you cant sell at 70 — so your break even point is 90, for example

Question 20

‘Define contribution

Answer 20

• amt. of money that remains after deducting the variable/direct cost
• the contribution to fixed cost — amt available per product to pay for fixed cost

Question 21

Give the profit formula

Answer 21

REVENUE - COSTS
(if total, -> total profit = total revenue - total costs)

ChatGPT: Total contribution - total direct cost (??)

Question 22

Define the relationship between the level of output and total cost

Answer 22

Directly proportional (^ lvl of outpt - ^ tital cost)

Question 23

Define what is a break-even point

Answer 23

when Sales Revenue = Total costs (including contribution, etc.)
- no profit nor loss

Question 24

Give the Break-Even Point formula

Answer 24

Fixed costs / (Selling Price - Variable Cost : AKA unit contribution)

Question 25

Give the formula for the total cost

Answer 25

(Selling Price - Variable Cost) - Fixed cost

Question 26

Give the formulas for total contribution

Answer 26

total revenue - total cost OR contribution per unit x quantity of unit sold

selling price - variable cost (?)

Question 27

Formula for Profit volumer ratio

Answer 27

Total contribution / Sales x 100

Question 28

Volume of sales at BEP formula

Answer 28

Fixed costs / (Profit Volume ratio)

Question 29

What should we use to get the Break Even Point if units sold isn’t given

Answer 29

1.) Get total contribution (Total revenue - total variable cost)

2.) Use P/V formula

3.) Get the sales at BEP

Question 30

Define limiting factors

Answer 30

The factors that hinders the business’ ability to achieve its goals

Question 31

Define contribution per (currency) of sales (?) | Generally, by what metric could “the best product” of a business be considered by?

Answer 31

Under normal situations, the best product of a business makes the most profit to satisfy the fixed cost (?)

Question 32

When is the “contribution per (currency) of sales” not true

Answer 32

• a factory producing a particular range of products may depend on a highly skilled labor force

Question 33

Define sales aka revenue, income, turnover, takings

Answer 33

The income generated from sale of goods or services

Question 34

How to calculate total sales aka total revenue

Answer 34

Total sales = quantity sold x selling price

Question 35

Differentiate and compare cost and price

Answer 35

Cost: cost of production/buying for the production — POV of buyer
Price: amount that the product is sold, set by the seller

-> can be the same value BUT of different perspectives

Question 36

What are indirect costs also called?

Answer 36

Administrative costs

Question 37

Define cost centres

Answer 37

A department in an organization that will not earn revenue but still costs

e.g.: Marketing department, customer service, research and development (do not earn mondy), HR

Question 38

Why is marketing department called a cost centres

Answer 38

They do not directly lead to sales

Question 39

Define profit centres

Answer 39

Departments directly related to generation of sales

e.g.: Sales department, retail branches

Question 40

What is a profit and loss account AKA income statement (Describe) [4]

Answer 40

• shows the income and expenditure statement (determines the flow of money per year)
• Annual fiscal year
• Purpose: determines if made profit or loss
• Three parts: trading account, profit and loss account and appropriation account

Question 41

Describe the trading account

Answer 41

Shows diff between what has been received - direct costs or variable costs
Gross profit = Sales Revenue - Costs of Sales
-

Question 42

Describe the profit and loss account

Answer 42

Shows the deduction of all expenses — indirect costs

Question 43

Define bad debt

Answer 43

Debts owed to you BUT! You weren’t able to collect

Question 44

Define depreciation

Answer 44

Rate of obsolescence

Question 45

Define the rate of obsolescence + why can’t it go below 1 (unit of money here) (DB for last)

Answer 45

• The rate of obsolescence refers to the speed at which a product, technology, or service becomes outdated or no longer relevant in the market. It is the pace of becoming obsolete.;
• The rate of obsolescence can go down below 1 if innovations, updates, or improvements in a particular field or industry occur at a slower pace compared to the past. For example, if technological advancements slow down or if there is less demand for rapid updates in a specific sector, the rate of obsolescence may decrease. This could result from market saturation, mature technologies, or a lack of significant breakthroughs.

Question 46

Describe allocation (Profit and Loss Statement)

Answer 46

What to do with the net income
- e.g.: dividends, retained income

Question 47

Define retained income

Answer 47

Income stayed within the company (e.g. not guven out as dividends)

Question 48

Purpose of income statement

Answer 48

To know where the money comes from and goes — a record of a transaction

Question 49

Differentiate fiscal year vs normnal year

Answer 49

Fiscal year - when the business starts

Question 50

Why do businesses use fiscal year?

Answer 50

Depends on the sale trends (e.g. Christmas = ^ sales) +
- e.g. August in the Philippines, there’s less sales/transactions, so companies will record their finance
(Not december because they need to do sales due to christmas)
-e.g.: Schools start at August so thats the beginning of their fiscal year