3.3 Costs and revenues

Question 1

what does costs and revenue determine?

Answer 1

the success of the business

Question 2

do not-for-profit social enterprises and non-governmental organizations have to be conscious about their costs and revenues?

Answer 2

yes they need to ensure there are regular revenue streams and that they control their costs

Question 3

what is cost?

Answer 3

total expenditure incurred by a business in order to run its operations. (Profit or loss cannot be calculated without accurate cost data.)

Question 4

what is revenue?

Answer 4

measure of the money generated by the sale of goods and services.

Question 5

what is profit?

Answer 5

calculated by finding out the difference between revenues and costs. A high positive difference is a good indicator of success. If the difference is negative this represents a loss.

Question 6

what is the formula for profit?

Answer 6

PROFIT = TOTAL REVENUE - TOTAL COSTS

Question 7

what is cost control?

Answer 7

vital to a business if they are to maintain and increase their profitability. Additionally, cost data is needed to assist in making important decisions.

Question 8

what are the 4 types of costs?

Answer 8

fixed costs
variable costs
direct costs
indirect/overhead costs

Question 9

what are fixed costs?

Answer 9

costs that do not change as a business changes output. Fixed costs exist even if a business is not (active) producing any goods or providing services. (these costs have to be paid even if there’s no business activity)

Question 10

what are some examples of fixed costs?

Answer 10

rent, insurance, salaries, interest payments, utility bills, etc…

Question 11

how are these costs usually paid?

Answer 11

these costs are time-based instead of output based. They are paid monthly, bi-monthly, or yearly.

Question 12

what are variable costs?

Answer 12

costs that vary or change with the number of goods or services produced (output). expenses that change in proportion to business output. If there is an increase in sales or output sold, it leads to an increase in variable costs.

Question 13

examples of variable costs

Answer 13

raw materials, packaging and piece rate or time rate wages.

Question 14

what is the formula of variable costs?

Answer 14

Total Costs = Fixed costs + Variable costs

Total costs = Fixed costs + (variable cost x quantity)

Question 15

what are direct costs?

Answer 15

expenses that can be directly tied to the production of goods or services. These expenses can be directly traced to a particular product, department or process

Question 16

examples of direct costs

Answer 16

Raw materials costs, sales commissions, packaging, and energy usage costs.

Question 17

examples of direct costs in a bakery

Answer 17

Flour, eggs, ovens, packaging, electricity, baker’s salary, etc.

Question 18

examples of direct costs in a hair salon

Answer 18

hampoo, hairdressers salary, scissors, razor, etc.

Question 19

what are indirect costs

Answer 19

costs that cannot be clearly identified with the production of a product or service. These are also called overhead costs. They are needed for the general functioning of the business.

Question 20

examples of indirect costs

Answer 20

Rent, secretarial staff, legal fees, insurance, marketing expenses, security, storage costs, interest on loans, etc.

Question 21

examples of indirect costs in a hair salon

Answer 21

Receptionist, marketing, rent, etc.

Question 22

examples of indirect costs in a bakery

Answer 22

Sales staff salary, rent, marketing, insurance, interest (if they have a loan)

Question 23

what is revenue

Answer 23

is the businesses income or earnings from the sale of products or services over a period of time.w

Question 24

what is the formula for revenue

Answer 24

Total revenue = Price per unit x quantity

Question 25

are revenue and profit the same ?

Answer 25

no. Revenue is the income brought into the business while profit is the revenue minus the costs.

Question 26

what are revenue streams

Answer 26

various sources from which a business earns money. This can be active or passive income for the business.

Question 27

examples of revenue streams

Answer 27

Different range of products
Consulting services
Advertising (on vehicles, on buildings, etc.)
Subscriptions
Education or training
Dividends from investments
Sponsorships
Renting unused spaces
Merchandise