3.3 Costs and Revenues
Cost - the monetary value of resources used by a business to produce and sell
Total cost = variable cost + fixed cost
Revenue = price x quantity
Profit = revenue - costs = price x quantity - average cost x quantity
Variable cost = average cost x quantity
Cost per unit = total cost/quantity
Cost center - an area of the business that is responsible for generating expenses.
Fixed cost | Cost that does not change as the output changes | Rent, machinery, wages, and insurance |
Variable cost | Costs that do change as the output changes | Raw materials, piece rate wages |
Semi-variable cost | Costs that can change with output but not in a direct way | Maintenance, energy costs |
Direct cost | Can be linked to each unit of output produced by a business | Labour, materials |
Indirect cost | Cannot be links | HR, marketing, administration |
Revenue – income a business receives from selling.
Revenue stream – sources of income that the business could generate from its products.