Costs and Revenues Unit IB

By the end of the chapter you should be able to: Explain the different types of costs, using examples Comment on the meaning of the term revenue and, using examples, suggest various revenue streams available to organization

Intro to terms Cost – total expenditures incurred by a business to run its operations Revenue – money generated from the sale of goods and services Profit – difference between revenue and expenses.

Types of Costs Fixed Costs - don’t change with the amount of goods or services produced Expenses that must be paid regardless of business activity Examples – Rent, Insurance, Salaries, Interest payments Variable Costs - vary with the number of goods or services produced Expenses that change in proportion to business activity Examples – raw materials, packaging, commissions, energy usage costs

Types of Costs – cont’d Semi-variable Costs – comprise both fixed & variable components Remain fixed for a given level, then become variable Semi-fixed or mixed costs Labor costs are an example; monthly phone charges Direct Costs Can be clearly attributed to production of a specific good or service Generally include raw materials, direct labor, packaging costs

Types of Costs – cont’d Indirect Costs Costs not clearly identified with production of specific goods or services Not directly traceable to a given cost center Can be difficult to assign – aka overheads or overhead costs Examples – rent, office staff salaries, interest on loans, warehouse costs

Total Revenue Total amount received from sales Total Revenue = Price per unit X quantity sold TR = P X Q Don’t confuse with earnings or profit, which consider expenses Not only obtained from trading Rental income; sale of fixed assets; Dividends; Interest on Deposits; Donations;

Assignments Student Workpoint 3.5 – page 176 Practice Question TAK – page 178