Concept, nature and importance of business finance

A variable cost changes in total as the level of production or sales changes, although the amount per unit may remain constant or vary. Examples include raw material, per-unit packing and some delivery charges. Rent that remains payable regardless of output is generally fixed, and changing a name or failing to record a cost does not change its nature.

Revenue is the income earned from sales or business operations before deducting business expenses. Profit is the surplus left after relevant expenses are subtracted from revenue; if expenses exceed revenue, there is a loss instead. Borrowed money is financing, not revenue. Since profit is calculated from revenue after costs, the two terms are not interchangeable.

A fixed cost generally remains unchanged within a relevant level of activity for a period, even if output changes. Monthly shop rent is a common example because the amount is usually payable regardless of the number of units sold. Raw material and packing vary with activity, while customer-specific discounts depend on sales terms. Therefore, option A is correct.

A variable cost changes with the level of production or sales. If an enterprise makes more units, it normally needs more raw material, so total material cost rises; if production falls, the total falls. Rent, an annual licence fee, and the purchase of equipment are generally fixed or periodic capital costs rather than costs that vary directly with each unit.