3.3 costs and revenues

Question 1

variable cost

Answer 1

costs that vary with output

Question 2

fixed cost

Answer 2

Those costs that, during the relevant period, do not vary with output or activity.

Question 3

examples of variable costs

Answer 3

materials
packaging
delivery
piece-rate wages and sales commission (Subtopic 2.4)
cleaning (hotels, for example)

Question 4

graphing variable costs

Answer 4

variable costs increase as the quantity of production increases

Question 5

examples of fixed costs

Answer 5

salaries and wages of staff that are not dependent on output
rent and mortgage payments
machines and other capital equipment
fixtures and fittings
insurance

Question 6

graphing fixed costs

Answer 6

always be a straught line

Question 7

total costs

Answer 7

VC+FC

Question 8

graphing total costs

Answer 8

start at the fixed cost line, increasing with the same pattern as variable costs

Question 9

semi variable costs

Answer 9

Some costs could be seen as having both variable and fixed elements. Electricity is a good example. In the coffee shop example, a small amount of extra electricity would be needed to power the espresso machine and make an additional cup of coffee. This is obviously a variable cost. However, electricity will also be used to power the lights and keep the fridges cool, and these do not vary with output.

Question 10

direct costs

Answer 10

A cost that is precisely traceable to a specific cost object, which may be a product, a service or a department. usually variable

Question 11

examples of direct costs

Answer 11

Raw materials used in making product

Direct labor costs such as wages

Packaging materials for specific product

Question 12

indirect costs

Answer 12

costs that are not directly linked to the production of the specific goods but are often necessary to the function. They are often fixed and include expenses that benefit the whole organization

Question 13

examples of indirect costs

Answer 13

Rent for the factory

Utilities like electricity

Salaries of administrative staff

Question 14

4 main groups of overhead ( indirect costs)

Answer 14

1) production overhead: costs related to production process eg: factory maintenance

2) administrative overhead: costs incurred in general administration of business

3) financial overhead: financial management of business

4) selling and distribution of overheads: promotion, marketing and delivery.

Question 15

revenue

Answer 15

income that the business earns from selling goods and services
price x quantity

Question 16

revenue stream

Answer 16

Income that a business generates for a particular activity.