Unit 3.3 Glossary of Key Terms - Costs and Revenues

Flashcards covering key terms related to costs and revenues.

Average costs

The cost per unit of output, calculated by the formula: AC = TC ÷ Q.

Average revenue

The amount a business receives from its customers per unit of a good or service sold, AR = TR ÷ Q = P.

Costs

The charges that an organization incurs from its operations, including rent, wages, salaries, and insurance.

Direct costs

Costs that are clearly associated with the output or sale of a certain good, service, or business operation, such as raw materials.

Fixed costs

Costs that do not change with the level of output, for example, loan repayments and management salaries.

Indirect costs

Also known as overhead costs, these are not easily identifiable with the sale or output of a specific good, service, or business operation.

Price

Also known as average revenue, this is the amount of money a product is sold for.

Revenue

The money (income) received by a business from the sale of goods and/or services.

Revenue stream

The different sources of revenue (or income) for a business, such as sponsorship deals, merchandise sales, membership fees, and royalties.

Total costs

The aggregate amount of money spent on the output of a business, calculated using TC = TFC + TVC.

Total revenue

The sum of income received by a business from its trading activities, calculated using TR = P × Q.

Variable costs

Costs that change with the level of output; they rise when output or sales increase, e.g., raw materials and packaging costs.