Business Costs

Question 1

What is a unit of sale?

Answer 1

The smallest chunk a good or service can be purchased in.

Question 2

What is revenue?

Answer 2

The total amount of money that a business receives from consumers in exchange for its goods or services.

Question 3

How do you calculate profit?

Answer 3

Subtract the costs from the revenue.

Question 4

What is profit?

Answer 4

The money left over after the expenses of running the business have been paid.

Question 5

What is an expense?

Answer 5

A cost associated with running a business.

Question 6

What are variable costs?

Answer 6

Costs that change depending on the amount of the product you are providing.

Question 7

Give an example of a variable cost.

Answer 7

The materials for making the bracelet.

Question 8

What are fixed costs?

Answer 8

Costs that are the same no matter how much of the product or service you are providing.

Question 9

What is another name for fixed costs?

Answer 9

Overhead or fixed operating costs.

Question 10

Do fixed costs change based on the number of sales?

Answer 10

No, they do not change based on the number of sales.

Question 11

What is the cost of goods sold?

Answer 11

The combination of variable costs that are necessary to make the good or provide the service.

Question 12

What role do materials play in business costs?

Answer 12

They are required to make a product or to help provide a service.

Question 13

What is labor in the context of variable costs?

Answer 13

The money paid to employees for their labor, which may be variable if they are paid by the hour or task.

Question 14

What are hourly employees or contract workers?

Answer 14

Employees who are paid by the hour or by the task.

Question 15

What is the term for the money paid to hourly employees?

Answer 15

Wages.

Question 16

Are all variable costs part of production?

Answer 16

No, some variable costs are separate from the cost of goods or services sold.

Question 17

What are fixed costs?

Answer 17

Fixed costs are expenses that do not change based on the level of goods or services produced by a business.

Question 18

What is rent in the context of fixed costs?

Answer 18

Rent (Leasing) is a regular amount you pay in order to use a space, such as a warehouse, office, store, or flea market booth.

Question 19

What is a lease or contract?

Answer 19

A lease or contract is an official legal agreement with your landlord that specifies when your rent can increase, often once a year.

Question 20

What are utilities?

Answer 20

Utilities are services necessary for running your company, such as electricity, heat, water, Internet, and telephone service.

Question 21

What factors can affect utility costs?

Answer 21

Utility costs may change based on external factors such as the weather, the price of fuel, the economy, and other factors.

Question 22

How does renting equipment relate to fixed costs?

Answer 22

Renting equipment involves paying a regular fee, usually per month, to use the equipment without owning it.

Question 23

What is depreciation?

Answer 23

Depreciation is the gradual reduction in the value of equipment over time, meaning it is worth less as it wears out.

Question 24

What is salaried labor?

Answer 24

Salaried labor refers to the cost of paying employees a fixed salary in each paycheck, regardless of product demand.

Question 25

What is a salary?

Answer 25

A salary is an agreed amount paid regularly to an employee for a certain amount of work, regardless of demand.

Question 26

Who are salaried employees?

Answer 26

Employees who receive a regular salary are called salaried employees.

Question 27

What is interest in the context of borrowing?

Answer 27

Interest is the extra amount added to a loan that the borrower pays back to the lender for temporary control over the money.

Question 28

How is interest calculated?

Answer 28

The amount added as interest is usually calculated as a percentage of the total borrowed, known as the interest rate.

Question 29

What are promotional costs?

Answer 29

Promotional costs are usually fixed costs incurred when a company advertises its product, as they do not change with sales volume.

Question 30

How do promotional costs relate to sales?

Answer 30

While sales increases may allow for more spending on promotions, there is not a specific amount that must be paid as sales fluctuate.

Question 31

What is insurance?

Answer 31

Insurance is a type of financial protection that a person or company can purchase from an insurance company, also called an insurance provider.

Question 32

What does an insurance company agree to do?

Answer 32

The insurance company agrees to give the company money if certain things go wrong.

Question 33

What can you buy insurance to protect against?

Answer 33

You can buy insurance to protect against things like lawsuits, theft, disasters, or other threats to your company or its property.

Question 34

How do you typically pay for insurance?

Answer 34

To get insurance, you usually pay either a monthly or yearly fee. This cost is usually a fixed amount that doesn't change when your number of sales changes.

Question 35

What is gross profit?

Answer 35

Gross profit is the money left over after subtracting the cost of goods or services sold from the company's revenue.

Question 36

What is net profit?

Answer 36

Net profit is the money left over after subtracting all variable and fixed costs from the company's revenue. Net profit is also known in business as the bottom line.

Question 37

What does it mean if the net profit is zero?

Answer 37

If the net profit is zero, the company is making exactly enough money to pay for its costs but isn't making a profit. This is called breaking even.

Question 38

What is a loss in business terms?

Answer 38

Loss is when a company loses money instead of earning a profit. This happens when a company's total costs are greater than its revenue.

Question 39

Can a company make a gross profit and still lose money?

Answer 39

Yes, it's possible for a company to make a gross profit and still lose money.

Question 40

What are startup costs?

Answer 40

Startup costs are the costs of getting a business up and running. Some startup costs are one-time costs, like a piece of equipment or a business permit.

Question 41

What do operating expenses include?

Answer 41

Operating expenses are the recurring costs of running the business, such as rent, paychecks, utilities, and so on.

Question 42

How long does it usually take for a business to catch up with its startup costs?

Answer 42

It usually takes a few months for the business to catch up with its startup costs and starts to make a profit, but it can happen much faster or more slowly.

Question 43

Why is it advantageous to have low startup costs?

Answer 43

Businesses with low startup costs have an advantage in being able to make a profit faster, so it's a good idea to try to keep your startup costs as low as you reasonably can.

Question 44

Can a business be profitable and then later have a loss?

Answer 44

Yes, a business might be profitable for some time and then later have a loss. If the profitable periods are enough to outweigh the losses, the company might be fine.