Business Costs



Revenue is the income earned by a business

1. businesses can earn most of their income from selling their product to customers 

2. revenue can be calculated by multiplying sales (the number of units sold) by the price (the amount the customer pays) 

Revenue = sales x price

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Costs can be direct or indirect:

1. direct costs are expenses that can be attributed to making a particular product, e.g. raw materials

2. indirect costs are general overheards of running the business, e.g office rent, salaries etc. 

Costs can be fixed or variable:

1. fixed costs don't vary with output. mostly indirect costs. have to be paid even if firm produces nothing

2. variable costs - costs that will increase as firm expands output, mostly direct costs - raw mateirals, machinery etc. 

Average cost is how much each product costs to make 

average cost = total cost / output

profit = revenue - costs 

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