Unit 3.2

Question 1

What are fixed costs?

Answer 1

Costs that do not vary with output in the short run

E.g. Rent, Property Tax

Question 2

What are variable costs

Answer 2

Costs that increase as output increases

E.g. Input costs for a restaurant- ingredients, gas for cooking

Question 3

What are semi-variable costs?

Answer 3

Costs that have both a fixed and variable cost part

Electricity- Fixed cost per month plus per unit used

Sales salaries- Basic salary plus commission

Question 4

What are direct costs

Answer 4

Costs that can be clearly identified with production of each unit of production or a project

Cost of meat in hamburgers

Cost BM teacher in BM education

Question 5

What are indirect/ overhead costs

Answer 5

Cost that cannot be clearly identified with each unit of production

Also called Overheads

Cost of cleaning a school or business

Promotional expenditure in a supermarket

Marketing

CEO salary

Question 6

What are revenue streams?

Answer 6

The income a business gets from a particularly activity

For example:

Selling goods & service, plus:

Advertisement on its website

Transaction fees

Sponsorship

Selling T-shirts with their business name on it

E.g. A football team

Question 7

What is revenue?

Answer 7

The income received from the sales of a product

Total revenue= price x quantity sold

Profit= Total revenue- total costs (FC + VC)

Or Total Revenue- Fixed Costs- Variable Costs