3.3 Costs and revenues Flashcards
what does costs and revenue determine?
the success of the business
do not-for-profit social enterprises and non-governmental organizations have to be conscious about their costs and revenues?
yes they need to ensure there are regular revenue streams and that they control their costs
what is cost?
total expenditure incurred by a business in order to run its operations. (Profit or loss cannot be calculated without accurate cost data.)
what is revenue?
measure of the money generated by the sale of goods and services.
what is profit?
calculated by finding out the difference between revenues and costs. A high positive difference is a good indicator of success. If the difference is negative this represents a loss.
what is the formula for profit?
PROFIT = TOTAL REVENUE - TOTAL COSTS
what is cost control?
vital to a business if they are to maintain and increase their profitability. Additionally, cost data is needed to assist in making important decisions.
what are the 4 types of costs?
fixed costs
variable costs
direct costs
indirect/overhead costs
what are fixed costs?
costs that do not change as a business changes output. Fixed costs exist even if a business is not (active) producing any goods or providing services. (these costs have to be paid even if there’s no business activity)
what are some examples of fixed costs?
rent, insurance, salaries, interest payments, utility bills, etc…
how are these costs usually paid?
these costs are time-based instead of output based. They are paid monthly, bi-monthly, or yearly.
what are variable costs?
costs that vary or change with the number of goods or services produced (output). expenses that change in proportion to business output. If there is an increase in sales or output sold, it leads to an increase in variable costs.
examples of variable costs
raw materials, packaging and piece rate or time rate wages.
what is the formula of variable costs?
Total Costs = Fixed costs + Variable costs
Total costs = Fixed costs + (variable cost x quantity)
what are direct costs?
expenses that can be directly tied to the production of goods or services. These expenses can be directly traced to a particular product, department or process
examples of direct costs
Raw materials costs, sales commissions, packaging, and energy usage costs.
examples of direct costs in a bakery
Flour, eggs, ovens, packaging, electricity, baker’s salary, etc.
examples of direct costs in a hair salon
hampoo, hairdressers salary, scissors, razor, etc.
what are indirect costs
costs that cannot be clearly identified with the production of a product or service. These are also called overhead costs. They are needed for the general functioning of the business.
examples of indirect costs
Rent, secretarial staff, legal fees, insurance, marketing expenses, security, storage costs, interest on loans, etc.
examples of indirect costs in a hair salon
Receptionist, marketing, rent, etc.
examples of indirect costs in a bakery
Sales staff salary, rent, marketing, insurance, interest (if they have a loan)
what is revenue
is the businesses income or earnings from the sale of products or services over a period of time.w
what is the formula for revenue
Total revenue = Price per unit x quantity
are revenue and profit the same ?
no. Revenue is the income brought into the business while profit is the revenue minus the costs.
what are revenue streams
various sources from which a business earns money. This can be active or passive income for the business.
examples of revenue streams
Different range of products
Consulting services
Advertising (on vehicles, on buildings, etc.)
Subscriptions
Education or training
Dividends from investments
Sponsorships
Renting unused spaces
Merchandise
