Unit 3.3 - Costs and Revenues

Question 1

What is Cost?

Answer 1

Cost refers to the total expenditure incurred by a business in order to run it’s operations

Question 2

What is Revenue?

Answer 2

Revenue is a measure of the money generated from the sale of goods and services

Question 3

What is Profit?

Answer 3

Profit is calculated by finding out the difference between revenues and costs. A high positive difference is a good indicator of business success.

Question 4

What are fixed costs?

Answer 4

Do not change or vary with the amount of goods or services produced.
Fixed Costs can change, but the change is not related to production/output of a business.

Question 5

What are examples of fixed costs?

Answer 5

Rent, Managerial Salaries, Insurance Premiums and Utility Bills

Question 6

What are variable costs?

Answer 6

• Change with the number of goods or services produced
• Change in proportion to business activity
• An Increase in sales or output sold leads to an increase in variable costs

Question 7

What are examples of variable costs?

Answer 7

Raw Material Costs, Sales Commissions, Packaging and Energy Usage Costs

Question 8

What is the Total Cost formula?

Answer 8

Total Cost = Total Fixed Costs + Total Variable Costs

Question 9

What are direct costs?

Answer 9

• Items of expenditure that can be explicitly associated with the output or sale of a certain good, service or business operation.
• Direct costs sometimes referred to as the cost of goods sold

Question 10

What are examples of direct costs?

Answer 10

Direct Raw Materials, Direct Labour Costs

Question 11

What are Indirect (overhead costs)?

Answer 11

Not easily identifiable with the sale or output of a specific good, service, department, or business operation.

Question 12

What are examples of indirect costs?

Answer 12

Rent on premises, Salaries for Administrative Staff, Legal and Accounting Fees, Utility Bills, Insurances, Maintenance and Running costs

Question 13

What is sales revenue?

Answer 13

Sales Revenue is the money coming into the business, usually from the sale of goods and/or services

Question 14

What is the sales revenue formula?

Answer 14

Sales Revenue = Price * Quantity Sold

Question 15

What are revenue streams?

Answer 15

Revenue Streams consist of revenue that doesn’t come from the sales of goods and services, but rather through other means

Question 16

What are examples of revenue streams?

Answer 16

Donations, Dividends, Merchandise, Subventions

Question 17

What is the formula for total variable cost?

Answer 17

TVC = Average variable cost * Quantity Sold

Question 18

What is the formula for Total Fixed Cost?

Answer 18

TFC = Average Fixed Cost * Quantity Sold

Question 19

What is the formula for average revenue?

Answer 19

Average Revenue = Total Revenue / Quantity Sold

Question 20

What is the formula for price? What does that mean?

Answer 20

Price = Total Revenue / Quantity Sold

This means that

Price = Aveerage Revenue

Question 21

When are the terms indirect and direct costs used?

Answer 21

The terms Indirect Costs and Direct Costs are used when referring to businesses that produce/sell a range of product and therefore operate cost centers and profit centers. These costs can be fixed or variable costs depending on the nature of the business.

Question 22

When are the terms fixed and variable costs used?

Answer 22

The terms Fixed Costs and Variable Costs, as used in break-even analysis are used when referring to the sale and production of just a single type of product.