Revision for test 1

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

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

TOTAL COST= FIXED COST+VARIABLE 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

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.

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)

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

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