3.3_Costs_and_Revenues_Business_Management_2023_HL (2)

Costs

• Definition: The sum of resources expended by a business during production.

• Examples: Raw materials, wages and salaries, insurance, advertising, rent.

Types of Costs

• Fixed Costs: Costs that do not change with the level of output. Include expenses that remain constant regardless of production volume.

• Variable Costs: Costs that vary directly with the level of output. Example: Cost incurred to produce each unit of a product or service.

Total Costs

• Total Cost: This is the sum of fixed and variable costs.

• Formula: Total Cost = Fixed Costs + Variable Costs.

Breakdown of Costs

• Notation: Total Cost (TC), Variable Cost (VC), Fixed Cost (FC), Quantity (Q).

• Relationship: Total cost is comprised of both variable and fixed costs.

Direct vs Indirect Costs

• Direct Costs: Costs that can be directly traced to the production of a specific product (cost centre) such as raw materials and direct labor.

• Indirect Costs: Costs that cannot be directly identified with a specific product or service, examples include advertising, interest on loans, legal expenses, and insurance.

Overheads – Examples

• Types of Overheads:

  • Production Overheads: Costs associated with production such as salaries of production staff, warehouse, and distribution costs.

  • Selling Overheads: Expenses like office rent and salaries of sales personnel.

  • Administrative Overheads: Including administrative salaries, office equipment, and utilities.

Revenue

• Definition: The income that a firm earns from selling its goods and services.

Revenue Calculation

• Formula: Total Revenue (TR) = Price (P) * Quantity (Q).

Income Specifics

• Definition: Income derived from specific activities related to an organization's operations.

Sources of Revenue Streams

• Examples of Revenue Sources: Dividends, sale of fixed assets, interest on deposits, grants, and subsidies.

Additional Revenue Streams

• More Sources: Subscriptions, transactions, donations, franchise fees, and royalties.

LEGO's Financial Overview

• Statistics: Global revenue of LEGO Group: 2021: $8b, net profit: $2b, number of retail stores: 832, employees: 24,000+.

• Revenue Growth Over the Years: Notable increase from 2005 to 2021.