costs and revenue

• Costs

  The amount that needs to be spent in order to purchase a resource that is necessary to produce or sell a product
• Categories of costs

  • Fixed and variable
  • Direct and indirect
• Fixed costs


  Costs that do not change in relation to the output
• Fixed costs

  • Internet fee for a furniture manufacturer
• Variable costs


  Costs that change in proportion to output
• Variable costs


  • Cost of wood for a furniture manufacturer
• Fixed costs

  Can change but the change is not related to output
• Variable costs


  Change because of a change in output
• Direct costs

  Costs that can be traced and related to a specific project or product
• Direct costs

  • Cost of wood for a furniture manufacturer
• Indirect costs

  Costs that do not apply to a specific product, they apply to the entire organization
• Indirect costs

  • Internet fee for a furniture manufacturer
• One cost is in two categories at the same time (fixed/variable and direct/indirect)
• Revenue

  The money that customers pay to the organization, not the same as profit
• Total revenue

  Price of a product multiplied by quantity sold
• Average revenue

  Total revenue divided by quantity sold
• Revenue streams

  • Dividends
  • Interest from bank deposits
  • Merchandise sales
  • Donations
  • Sponsorship deals
  • Advertising revenue
  • Subscriptions
  • Royalties
  • Rental income
• Revenue streams are means other than trading activity to generate income for an organization