24- Business Costs

8/13/2019 24- Business Costs

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Business Costs

To be able to identify the different Business

costs associated with producing goods and

providing services.


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Costs and Revenue

Costs = Money going out of anorganisation

Revenue = Money going into anorganisation

Costs Revenue


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Sales Revenue

Money coming into a business.The valueof all the goods you have sold

Sales Revenue = Price x Quantity sold


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Revenue Your Turn

1. I sell you one pen for 1. What is mySales Revenue?

2. I sell you 12 pens for 1 each. What ismy sales revenue?

3. I sell you 100 pens at 50p each. Whatis my sales revenue?

4. I sell you 1,000,000 at 1.50 each.What is my sales revenue?


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Direct costs


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Direct costs

Costs directly associated with makingsomething

For example:- Raw materials

e.g. metal, glass, plastic etc. to make cars

e.g. coffee, milk and hot water to make a cup ofcoffee

The wages of an employee who actuallymakes a product, e.g. a toymaker


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Indirect Costs


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Indirect Costs

Costs not directly associated with making something,but that still have to be paid

For example:- Rent Heating Lighting Staff in the office Electricity bill Insurance Business rates Etc.


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Fixed costs


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Fixed costs

Costs that stay the same however manyunits you produce

E.g. Insurance, phone bill, rent, businessrates


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So

If you make 10 cars your rent would be200,000

If you make 5,000 cars, your rent wouldbe 200,000

So, if you make 10,000 cars, what wouldyour rent be?


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Variable costs


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To work out Total Variable Costs

TVC = Number of units X variable costper unit

For example You make 10baseball hats

The Variable Cost for each hat is 5 The cost of material etc.

Total Variable Costs = 10 x 5 = 50


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Work out the Total Variable Costsfor the following

A tie manufacturer makes 100 ties and theVariable Cost per unit is 3.50

A football manufacturer has variable costsof 4 per unit and makes 500 footballs

A poster manufacturers variable cost perposter are 2. He makes 75 posters.


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Total costs


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Average costs


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Average costs

Average costs =Total costs

Number of units made


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Work out the Average Costsfor thefollowing

A tie manufacturer has fixed costs of 300.She makes 100 ties, and the Variable Cost perunit is 3.00

A football manufacturer has fixed costs of1,200. Their variable costs are 4 per unitand they make 200 footballs

A poster manufacturers variable cost perposter are 2. He makes 75 posters. Inaddition to variable costs, they also have fixedcosts of 120


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Complete this question

Ben runs a paper production company

His fixed costs per month are 10,000

His variable cost per pallet of paper are 500 Last month he sold 100 pallets of paper

Work out Bens total variable costs

Work out Bens total costs

Work out Bens average costs


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Complete this question

Sarah runs a factory that produces T-shirts Her fixed costs are 60,000 for the year She expects to sell 1,650 T-shirts per month

Her total variable costs for these T-shirts is3,300 per month Work out Sarahs variable cost per t-shirt Work out Sarahs total costs per month

Work out Sarahs average costs per month

l h


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Complete this question Nahla runs a bakery that produces carrot cake Her fixed costs for the year are 36,000 She expects to sell 1,000 cakes in a month She has to pay the following amount for her ingredients

per month:Butter 200 Sunflower Oil 100

Sugar 200 Flour 150Raisins 100 Eggs 100Carrots 150

Work out Nahlastotal variable costs per month Work out Nahlasvariable cost per unit

Work out Nahlastotal costs per month Work out Nahlasaverage costs per month

Extensionif she sells each cake for 5 what is her total profiteach month


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Extension task

Are raw materials a fixed cost or a variablecost? (Explain your answer) 2 marks

Is rent a fixed cost or a variable cost?

(Explain your answer) 2 marks

Would the wages of someone working in theoffice in a factory be considered fixed costs

or variable cost? (Explain your answer) 3marks

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24- Business Costs