3.2 Costs and revenues

Question 1

What are the 2 ways of splitting costs?

Answer 1

Fixed/variable

Direct/indirect

Question 2

Define fixed costs

Answer 2

Production costs that don’t depend on level of output

Question 3

Define variable costs

Answer 3

Costs that vary with level of output

Question 4

Define contribution & its formula

Answer 4

The amount of money left over after the variable cost per unit is taken away from the selling price

Sales price per unit - average variable cost

Question 5

Define revenue & its formula

Answer 5

Proceeds coming into the business

Price * quantity sold