3.3 Glossary of key terms

Unit 3.3 Glossary of key terms - Costs and revenues

Key term	Definition
Average costs	This is the cost per unit of output. It is calculated by the formula: AC = TC ÷ Q where: AC = Average cost TC = Total cost, and Q = Quantity of output
Average revenue	This is the amount a business receives from its customers per unit of a good or service sold. Mathematically, AR = TR ÷ Q = P where: AR = Average revenue TR = Total revenue Q = Quantity of output, and P = Price
Costs	The charges that an organization incurs from its operations, e.g., 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, e.g., raw materials.
Fixed costs	Costs that do not change with the level of output, e.g., loan repayments and management salaries.
Indirect costs	Also known as overhead costs, these costs 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, e.g., revenue from sponsorship deals, merchandise sales, membership fees and royalties.
Total costs	This refers to the aggregate amount of money spent on the output of a business. The formula is: TC = TFC + TVC where: TC = Total costs TFC = Total fixed cost, and TVC = Total variable cost.
Total revenue	This is the sum of income received by a business from its trading activities. It is calculated using the formula: 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.

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