3.3 Cost & Revenues

Price Vs Cost

Types of Cost

FC- Fixed Cost

  • Cost of production that a business has to pay regardless of how much a business pay and sells

  • Stay constant

    • Ex.

      • Rent

      • Salary

      • Bank Loan

      • Advertising & Promotion

      • security( cybersecurity)

      • Accounting

VC- Variable Cost

  • cost of production that changes to the level of output or sales

    • Ex.

      • Hour employees

      • Commission

      • Raw materials

      • packaging

      • postage

Total Cost - combination of all cost

Semi Variable

  • FC + VC = SVC

  • Change when production exceeds a certain level

    Ex.

    • Machine ( maintains fee)

    • Phone plans

Direct

  • similar to variable cost hey change with the level output and sales

  • but direct cost is linked specifically related to a specific project or product

  • all direct costs are variable cost

  • but not all not all variable cost are direct

Indirect (overheads)

  • any cost that cannot be clearly traced to a production or sale of a single product.

  • all fixed cost are indirect

  • not all indirect cost are fixed

Cost formula

TC = TFC + TVC

TVC = AVC* Q

AC = TC/Q

Revenue

Revenue - refer to the money coming into a business

  • usually through the sale of goods or services

    • where else does revu=enue come from

Profit = TR- TC