2.3 Costs and Revenues

Costs

• Are the charges that an organization has due to its operations

Fixed costs

• Do not change with the level of output being generated
• e.g. rent salaries leasing machinery advertising

Variable costs

• Costs that change with the level of output; increases as output increases
• e.g. wages raw materials etc.

Direct costs

• Costs that go into the production of goods or services
• e.g. wages raw materials rent (for some cases) etc.
• Can be fixed or variable; it doesn't matter

Indirect costs

• Also known as overheads they are costs that are not associated with the actual production of a good or service
• e.g. lubricant oil indirect labor (e.g. cleaning) lighting repairs etc.

Revenue streams

• Various sources of revenue of a business

Total revenue

• Sum of money coming into a business from its trading activities

Average revenue

• Amount a company receives from its customer per unit of good or service sold

Revenue

• The money coming into a business from the sale of a good or service