Revision for test 1


  • Created by: jennalil
  • Created on: 18-11-14 09:34

Variable cost

variable costs are the cost that will rise when sales increase and fall when there is a fall in the demand for the product. variable cost are:

  • wages are paid for each item
  • VAT is paid
  • items of new machinery
  • electricity cost
  • material costsare brought from suppliers
  • maintenance costs of machines
  • telephone charges for calls are paid
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fixed cost

Fixed costs is the cost that remain the same even when the sales fall or increase. fixed cost are:

  • insurance is paid monthly
  • rates are paid monthly
  • office staff are paid a fixed salary


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direct and indirect cost

Direct costs: are the cost that can be linked to a product such as the raw materials and labour used to make it

Indirect costs: are often also called over heads and are the cost that are required for a business to operate but are not directly related to a specific products

Direct cost are: e.g. hollister

  • fabrics
  • buttons
  • plastic

Indirect cost are: e.g hollister

  • electricity
  • gas
  • water
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start-up costs

start-up costs are the amount of money spent setting up a business before it starts trading. start-up cost are:

  • a driving instructor needs a car
  • a print shop needs a computer and a copier
  • both will need to advertise their business to attact customers

The main point about start-up costs is that these are incurred before any income is revieved and the owner has to find this money.

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Operating cost (or running cost)

Operating cost are the money that is spent to keep a business running. running costs are:

  • a driving instructor must buy fuel for the vehicle
  • print shop has to buy paper and pay for electricity

running cost of a business can also be split into two types:

  • fixed costs (or indirect cost)
  • variable cost (or direct cost)
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Revenue= number of sales x price per unit

Example:  if a business sells 1000 small boxes of chocolates at £4.00 each, the revenue will be 1000 x £4.00= £4000

Usually business make their revenue by selling goods and/or services to customers. some businesses sell a service such as hairdressers and window cleaners, some business sell both products. Example: many care dealerships operate wehicle workshops for services and repairs

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expenditure budget: an expenditure budget is an estimate of all the planned business cost for a set period of time. the expenditure budget will need to include estimates for any changes the business is planning to make, such as the purchase of new equipment.

business expenditure:

rent and business rates - to use and operate business premises

staff wages - to pay for staff who carry out the activities needed to run the business

raw materials/components/packaging - to make, assemble and pack the finished products

stock items for resales - items purchase by retailers to sell to customers

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