Learning Objectives

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Learning Objectives

• Identify the difference between the differing
  types of costs
• Identify the different types of revenue
• Explain the importance of costs, revenue and
  profit for a business

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Starter

• _____________ - ______________
• PROFIT!

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Covering the costs of a new product or service
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Types of costs 1

• Start-up costs
• Are payments made before, or soon after, the
  start of a project
• Occur only once
• May be quite high (eg for a new building)

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Examples of start-up costs

• New building or extension to existing building
• New machines, including installation
• Office equipment, including ICT
• Market research and advertising
• Initial stocks of materials
• Installation of gas, electricity, telephone lines
• New vehicles

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Types of costs 2

• Running costs
• These begin once the project has started
• They arise on a regular basis
• Must be paid for as long as the project lasts

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Examples of running costs

• Wages and salaries
• Heating and electricity
• Repairs and maintenance
• Business rent and rates
• Materials and stationery
• Telephone
• Advertising
• Vehicle running costs (eg diesel fuel)

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Warning!
Some types of costs can be both start-up and
running costs, eg

• Stock (initial stock start-up regular stock
  running)
• Advertising (initial adverts start-up regular
  adverts running)

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Key questions to ask

• Is the bill paid once only? If so, cost is a
  start-up cost.
• Is the bill paid regularly? If so, cost is a
  running cost.

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Importance of costs

• Questions
• Why is it important to know your start
• up and running costs?
• Why is it important to reduce costs?

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The basics of break-even

• There are two types of costs
• Variable costs increase by a step every time an
  extra product is sold (eg cost of ice cream
  cornets in ice cream shop)
• Fixed costs have to be paid even if no products
  are sold (eg rent of ice cream shop)

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Examples of variable costs

• Variable costs increase with the amount of
  production
• Raw materials
• Petrol
• Labour (paid by the hour)
• Packaging

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Example of Variable Costs
One product costs 1 to produce
Costs of production
4
3
2
1
1 2 3 4
Production level
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Examples of Fixed Costs

• Fixed costs remain the same no matter the
  production level
• Rent
• Business rates (tax on businesses)
• Salary based employee wages
• Insurance

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Example of Fixed Costs
Costs of production
400
300
200
100
1 2 3 4
Production level
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Assessment Slides

• Write a powerpoint that examines all that you
  have learnt today include examples (inc pics) for
  each of the following
• Start up costs
• Running costs

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Choose a Business

• Develop a powerpoint for a new business venture
  that you wish to setup.
• Price and identify
• Fixed costs
• Variable costs of your product/service
• Start up costs
• Running costs

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Sales Revenue

• Revenue selling price x quantity sold
• i.e if a product is sold for 15 and sells 10
  units then it will bring in 150
• 15 x 10 150