3.3 costs and revenue

costs definition

the expenditure incurred by a business , not the amount paid by a customer.

total cost formula

total fixed costs + total variable costs

average cost formula

1. total cost divided by quantity

2. average fixed cost + average variable cost

Set up costs

cost needed to set up a business

running costs

ongoing cost of operating the business (day to day)

Fixed costs definition

the COP that a business has to pay regardless of how much it produces or sells

• it can change but happens independently from the level of output (pay the same amount even if u earn 0 dollars)

total fixed cost formula

Average fixed cost X quantity

average fixed cost formula

total fixed cost divided by quantity

Variable costs

the COP that changes in proportion with the level of output or sales

• as output increases , VC increases

total variable cost formula

Average variable cost X quantity

Revenue

refers to the money coming into a business , usually form the sales of gods and services / sales revenue

sales revenue formula

price x quantity sold

revenue streams definition + examples

money coming into a firm

1. advertising revenue

2. transaction fees (extra charges for services , credit card )

3. franchise cost and royalties

4. sponsorship revenue

5. Subscription fees

6. merchandise

7. interest earnings

8. dividend

9. donations

10. subventions

sponsorship revenue defintion

sponsors who support and organisation financially

subscription fees definition

charges imposed on customers for using a service

merchandise defintion

products sold in addition to the main product

subventions definition

subsidies given by the government to reduce business cost

contribution

the sum of money that remains after all direct and variable costs have been taken away from the sales revenue

• towards FC

contribution per unit formula

selling price - variable cost per unit

total contribution formula

(price - average variable cost) X quantity