Unit 10: Cost and Revenue Projection

Revenue Projection Based on units sold and price, adjusting for variable/fixed cost dynamics.

Why learn about cost and revenue projection?

The primary reason is to ensure proper planning and financial viability of a project.

Setup Costs

Initial once-off costs like re-tooling, installation, training, etc.

Operating Costs

Costs involved in production or service rendering, e.g., materials, labor, power.

Variable Costs

Costs that vary with production volume such as materials and labor.

Overhead Costs

Fixed, indirect costs not linked to production volume like rent, admin, etc.

Examples of Overhead Costs

Rent, utilities, insurance, office supplies, travel, salaries.

Overhead Rate

A ratio of indirect to direct costs used to assess cost-efficiency.

Top Down Estimation

Uses expert judgment, analogous, and parametric techniques.

Bottom Up Estimation

Method that builds the total cost by estimating components in detail.

Fixed Costs

Constant costs like rent (R60,000), insurance (R20,000), maintenance (R10,000).

Variable Costs

Per unit costs like materials (R300), labor (R55), electricity (varies per month).

Cost Estimation Goal

Project future cost scenarios (Best, Optimal, Worst) for budgeting.

Selling Price Assumption

R450 per unit with estimated monthly increases.

Revenue Projection

Based on units sold and price, adjusting for variable/fixed cost dynamics.