3.3 Costs and Revenues

Revenue

Revenue

Business income or earnings over a period of time

Formula for revenue

Price per unit x Quantity

Difference between revenue and profit

Revenue: income brought into business, Profit: revenue minus the costs

Revenue Streams

Various sources from which a business can earn money, can be active or passive income

Examples of Revenue Stream

Consulting Services, Subscriptions, dividends from investments, merchandise

Advantages of Revenue Stream

Should lead to higher revenue, form of diversification (support struggling product), motivating for employees

Disadvantages of Revenue Stream

Business can lose focus & confuse customers, usually means more cost and workers, could fail which is waste of time & resources

Turnover

The amount of money taken by a business in a particular period

Cost

Expenditure or amount paid to produce or sell a good or service

Profit

Calculated by subtracting costs from revenue

Fixed Costs

Costs that don’t change no matter the level of output

Variable Costs

Costs that vary or change with the number of goods or services produced

Semi Variable

Include both a fixed or variable element

Direct Costs (operating/VC/COGS)

Costs than can clearly be identified with each unit of production & can be allocated to a cost centre

Indirect Costs (overhead costs that are for general functioning of business)

Can’t be clearly identified with the unit of production of a product or service

Examples of Fixed Cost

Rent, insurance, salaries

Examples of Variable Cost

Raw materials costs, sales, energy usage costs