Costs & Revenue

1. Costs & Revenue Chapter 31

2. Direct Costs • Costs that can be identify with each unit of production. • For example, the direct costs for the fried chicken would be the costs of manufacturing it, packaging it and price of the chicken.

3. Indirect Costs • Costs that cannot be identify with each unit of production. Also known as Overhead Costs. • For example, an indirect costs for the Regents School is cleaning it.

4. Types of Indirect Costs • Production Overheads- Factory rent and electricity • Selling and Distribution Overheads- Warehouse, packing, distribution costs and salaries of sales staff • Administration Overheads- Office rent and white-collar worker’s salaries • Finance Overheads- Interests on loans

5. Fixed Costs • These remain fixed and is not affected by the level of output Variable Costs • Costs the vary with output Semi-Variable costs • Costs that have both fixed cost and a variable cost element • An example of this would be a sales person’s fixed basic wage + commission that varies with sales

6. Marginal Costs • The extra cost of producing one more unit of output

8. Revenue • Revenue The income received from the sale of a product • Total Revenue Total income from the sale of all unit of the product=quantity x price

9. Contribution to fixed costs • Must not be confused with profit, the contribution of a product refers to how much it covers the fixed cost once the variable cost have been covered. • Contribution per unit Selling price of a product less variable costs per unit • Total Contribution Total revenue less total variable costs of producing it

10. Activity • AdiNike has a fixed cost of $10000 and variable costs of $2. AdiNike is to produce 1000 shoes. Calculate the total cost.

11. Activity • The following data refers to the cost and revenues of Ham’s Toys Ltd. when operating at 2000 units of output per month. Calculate the total cost of producing 2000 units.

12. Socrative:Room Number: 971865

13. Homework • Activity 31.4 Questions 1,2 and 3 page 330