3.2 Cost & Revenues

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3.2 COST & REVENUES

INTRODUCTION:

Cost and revenues are very important factors that determine the success of a business.

Cost - refers to the total expenditure incurred by a business in order to run its operations.

Revenue - is a measure of the money generated from the sale of goods and services.

Profit - is calculated by finding the difference between revenues and costs. A high positive outcome is a good indicator of business success.

TYPE OF COSTS:

Fixed Costs -  These are the costs that do not change or vary with the amount of goods or services produced. They are mostly time related (annually, monthly or per quarter).

Variable Cost - These are the costs that vary with the number of goods and services produced. They are paid by quantity produced.

TOTAL COST (TC) = total fixed cost (tfc)+ total variable cost (tvc)

Semi Variable Costs - these are costs comprising both fixed and variable components. They remain fixed for a given level of production or consumption, after which they become variable when the set level is exceeded.

Direct Costs - these are the costs that can be identified with or clearly attributed to the production of specific goods or services. They are expenses that can directly be traced to a particular product, department or process.

Indirect Costs - these are the costs that are not clearly identified with the production of specific goods or services.

TOTAL REVENUE:

Revenue - a measure of the money generated from the sale of goods and services

Total Revenue - the total amount of money a firm receives from the sale of goods or services, found by multiplying the price per unit by the number of units sold.

Total Revenue  = price per unit x quantity sold

TR = P x Q

 

Available Revenue streams to businesses include rental income, sale of fixed assets, dividends, interests on deposits, donations, grants and subsidies.