Types of Costs

Types of Costs

Costs is another name for expenses (money going out of the business).  There are 3 types of costs:

• Fixed Costs – these are costs that always stay the same, no matter how many units of a product are made.  Examples include rent, rates, insurance, loan repayments etc.
• Variable Costs – these are costs that change depending on how many units of a product are made.  Examples include raw materials, electricity, cost of labour etc.
• Total Costs – these are fixed costs and variable costs added together.
   
  Revenue
   
  Revenue is the name given to money that a business receives through selling a product.  The more products sold, the higher the total revenue will be!
   
  Total revenue = selling price x units sold
   
  Note:  total revenue is not the same as ‘profit’ as no costs have been taken off yet.
   
  Break-even Calculation:
   
  To calculate the break-even point, we need the total costs figure and total revenue.
   
  Break-even point (BEP) = Total Costs (TC) = Total Revenue (TR)