3.2 Costs and Revenues
• It is essential that businesses keep track of their revenue and cost if they are to have a hope of making a profit. Even not-
for-profit enterprises need to do this, so they can meet their social objectives and avoid going out of business.
• Profit = Revenue - Cost
• Cost - anything a business spends money on • Variable costs - costs that vary directly with output. An
• can be categorised as fixed, variable, semi-variable, increase in output must lead to an increased variable
direct and indirect. cost.
• Examples:
• materials
• packaging
• Fixed costs - costs that do not vary directly with output. • delivery
There are fixed costs which need to be paid no matter • piece rate labour and sales commission
what level of output • cleaning (in the case of something like a hotel).
• Examples: • must distinguish variable costs per unit and total variable
• salaries of staff costs
• rent and mortgage payments • variable costs per unit are the costs in relation to making
• machines and other capital equipment one product
• fixtures and fittings • total variable costs are the sum of all variable costs
• insurance. • multiply variable costs per unit and the quantity of units to
calculate the total variable costs.
• Semi-variable costs - costs which have both variable
and fixed elements.
• Examples:
• mobile phone bills, which feature a monthly fixed fee
plus a charge for any additional units that are used
• production staff, who are paid a basic salary plus a
bonus for any additional output.
• Revenue - the return on the sale of goods and services
• Sales Revenue = Price x Quantity
• a firm’s total annual revenue is recorded on its profit and
loss account
• Revenue Streams - revenue generated from the sales of
more than one product or service provided by a business
• introducing new revenue streams is a method of internal • Direct costs - costs which are only attributed to a single
growth and diversification part of the business
• Multiple revenue streams contribute to a firm’s total • Examples:
revenue • staffing cost of employees in a particular part of the
• Examples: business
• a cinema selling movie tickets, snacks and the • utility costs for a single store
movies merchandise • material costs for a product line
• a tech store selling laptops, phones and tablets • running costs of a single store
• a supermarket selling clothes, food, and furniture
• Indirect costs - costs that cannot be identified and
associated with a cost centre
• Examples:
• nationwide advertising campaigns
• accountancy and auditors’ fees
• salaries of the board of directors
• expenses of running a central human resources
department
• ICT and infrastructure costs
• It is essential that businesses keep track of their revenue and cost if they are to have a hope of making a profit. Even not-
for-profit enterprises need to do this, so they can meet their social objectives and avoid going out of business.
• Profit = Revenue - Cost
• Cost - anything a business spends money on • Variable costs - costs that vary directly with output. An
• can be categorised as fixed, variable, semi-variable, increase in output must lead to an increased variable
direct and indirect. cost.
• Examples:
• materials
• packaging
• Fixed costs - costs that do not vary directly with output. • delivery
There are fixed costs which need to be paid no matter • piece rate labour and sales commission
what level of output • cleaning (in the case of something like a hotel).
• Examples: • must distinguish variable costs per unit and total variable
• salaries of staff costs
• rent and mortgage payments • variable costs per unit are the costs in relation to making
• machines and other capital equipment one product
• fixtures and fittings • total variable costs are the sum of all variable costs
• insurance. • multiply variable costs per unit and the quantity of units to
calculate the total variable costs.
• Semi-variable costs - costs which have both variable
and fixed elements.
• Examples:
• mobile phone bills, which feature a monthly fixed fee
plus a charge for any additional units that are used
• production staff, who are paid a basic salary plus a
bonus for any additional output.
• Revenue - the return on the sale of goods and services
• Sales Revenue = Price x Quantity
• a firm’s total annual revenue is recorded on its profit and
loss account
• Revenue Streams - revenue generated from the sales of
more than one product or service provided by a business
• introducing new revenue streams is a method of internal • Direct costs - costs which are only attributed to a single
growth and diversification part of the business
• Multiple revenue streams contribute to a firm’s total • Examples:
revenue • staffing cost of employees in a particular part of the
• Examples: business
• a cinema selling movie tickets, snacks and the • utility costs for a single store
movies merchandise • material costs for a product line
• a tech store selling laptops, phones and tablets • running costs of a single store
• a supermarket selling clothes, food, and furniture
• Indirect costs - costs that cannot be identified and
associated with a cost centre
• Examples:
• nationwide advertising campaigns
• accountancy and auditors’ fees
• salaries of the board of directors
• expenses of running a central human resources
department
• ICT and infrastructure costs
