3.2

Question 1

Semi Variable costs

Answer 1

Costs that have both fixed and variable cost part

• Electricity - Fixed cost per month + per unit used
• Sales Salaries - e.g. Car salesperson

Basic salary (Fixed) + Commission per car sold (Variable)

The more they sell the more they earn

Question 2

Direct Costs

Answer 2

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

Cost of meat in hamburgers
Cost of steel in certain cars

Question 3

Indirect

Answer 3

Costs that cannot be clearly identified with each unit of production

Costs that do NOT lead to production, but they must be paid to run the business

AKA Overheads

• Cost of cleaning a school or business (does NOT lead to production of lessons)
• Promotional expenditure in a supermarket (advertisement of the business as a whole)
• Marketing

Question 4

Why are costs important?

Answer 4

One of the factors of Profit

Determines pricing decisions by Marketing (eg. Cost + pricing)

Comparisons over time

Set budgets for the future

Question 5

Revenue

Answer 5

The income received from the sale of a product

Total revenue = price x quantity sold

Profit = Total Revenue - Total Costs

Or Total Revenue - Fixed Costs - Variable Costs

Question 6

Total Revenue

Profit

Total Costs

Answer 6

Total revenue = price x quantity sold

Profit = Total Revenue - Total Costs

Total costs = Fixed Costs - Variable Costs

Question 7

Revenue Streams

Answer 7

The income a business gets from different business activity

• The most common is selling goods and services

Businesses can also generate revenue elsewhere

• Advertisement on its website
• Transaction fees
• Selling T-shirts with their business name on it

Question 8

Fixed Costs

Answer 8

Costs that do not vary with output in the short run

E.g. Rent, Property tax

Question 9

Variable Costs

Answer 9

Costs that increase as output increases

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