1. Costs and Revenues Unit 3.2 - IB

2. 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

3. 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.

4. 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

5. 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

6. 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

7. 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;

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