Business revenue & costs

• Definition of fixed costs: costs that stay the same when output increases e.g rent
• Total cost = total fixed + total variable
• Definition of variable costs: costs that change as output changes e.g raw materials
• Definition of semi-variable costs: costs that have both fixed and variable elements to them e.g telephone costs
• Definition of direct costs: costs which can be identified directly with the production of a good/service e.g raw materials.
• Definition of indirect/overhead costs : Costs that are not directly related to the production of goods and services, they need to be paid whether or not the production of goods/services takes place e.g rent
• Sales revenue = quantity sold x selling price
• Profit = sales revenue - total costs
• Definition of contribution: difference between sales revenue and variable costs, used to pay fixed costs and to provide profits
• contribution per unit = selling price - variable costs per unit
• Total contribution = sales revenue - variable costs
• break- even output = fixed costs / contribution per unit