3.3 Flashcards
why is it important for every business to take their cost and revenue into account?
It is important for every business to take into account their costs and revenues to determine the success of the business.
define costs
Costs – total expenditure a business incurs in order to run its operations.
(Costs are NOT price!.)
define revenue
(also known as sales revenue)it refers to the amount of money a business generates from the sale of goods and services. It is calculated by the formula: TR = P*Q
define profit
it is the difference between revenue and cost : Pr = TR-TC
define and give examples of fix costs? and when they can change.
the costs of production a business has to pay regardless of how much it produces or sells.
Examples of Fixed costs are: rent, insurance, interest on loans.
Fixed cost can change, but independently on the level of production (output). For example, a landlord might increase the rent.
what is a variable cost and give examples?
the costs that change in proportion with the level of production (output) or sales.
(i.e. raw material costs will increase if a textile firm makes more curtains).
Other examples packaging costs.
what is the total cost?
this is just the sum of Fixed Costs (FC) plus Variable Costs (VC)

what are direct costs and can you give examples?
these are costs that can be identified with the production of specific goods and services and therefore can be easily traced and assigned to a particular department or cost centres).
examples are: the cost of meat for a burger fast food restaurant, the cost flour for a bakery or the cost of workers in a factory.
what is an indirect cost and can you give examples?
these are costs that are not clearly identified with the production of specific goods and services and hence are very difficult to trace to a department and to a specific cost centre.
For example rent and electricity bill can be assigned to all areas of the firm rather than directly linked to a particular department.
Other examples are: stationary, insurance, utility bills or legal expenses.
what is total revenue also known as? and what does it include?
Total Revue is also know as Sales Revenue or Turnover and includes ALL income received
what are the 8 examples of revenue streams? (how you attain revenue)
rental income, sale of fixed assets, dividend, interests on deposits, donations, subsidies, advertising revenue and merchandise.
define rental income?
Rental Income – in case the firm has another property that generates an income. Also, some firms can rent their spaces in different seasons (i.e. university halls during summer holidays)
what is sales of fixed assets?
sell of unused or unutilized assets (i.e. machinery, old computers, furniture, stationary etc.)
what is dividence?
when a firm is a shareholder in another business and receives the dividends.
what is intrest on deposits?
when a firm has money deposited in the bank and receives and interest (business can hold a substantial amount of money that generates high interest rates.
