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Introduction

Fact file a) Fixed costs have to be paid regardless of how much is produced, for example, rent and rates. b) Variable costs are directly related to the amount produced or sold, for example, raw materials, and stock for resale. Business Costs There are three main types of business costs. Start-up costs - These are gained before a business begins to operate, such as the purchase of land, building and equipment. __________________________________________________ Fixed costs - These are incurred once a business is running, no matter how many products it sells or how many customers it has. A car manufacturer has to pay heating bills whether it sells one car a day or a hundred. Fixed costs are also called indirect costs. They have to be paid whether the business is busy or quiet. ...read more.

Middle

If a shop sold 200 cones in a day, the total variable cost for that day would be: 14p x 200 = 2800p = �28.00 ___________________________________________________ Total costs - Businesses need to know how much money they are spending altogether and how much they're going to pay, i.e. total costs. This is the total fixed costs and the total variable costs added together. ___________________________________________________ Key terms a) Start-up costs are costs incurred before a business starts or when it is expanding or going into a new venture. b) Operating costs are costs a business incurs once it is up and running. Variable and fixed costs added together are known as operating or running costs. Revenue Revenue is the income received by a business from all sources. Sales - These are the main source of revenue for most organizations because customers pay for the goods or services they buy. ...read more.

Conclusion

For example, a newsagent might receive �4,000 income in a week from selling papers, magazines, sweets and other items. If it costs her �2,500 to buy these goods then the gross profit for that week is: �4,000 - �2,500 = �1,500 The amount spent by the newsagent on the papers, sweets and other stock is called cost of sales. So the formula for calculating gross profit is: Gross profit = Sales income - Cost of sales Net profit Net profit is calculated by subtracting other expenses from the gross profit. If the newsagent spends �1,000 on operating costs such as business rates, wages for part time staff, heating, rent, business rates etc., the net profit is: �1,500 - �1,000 = �500 So, the formula for the calculating net profit is Net profit = Gross profit - Operating costs Milla Jay UNIT 3.1 Understanding costs, revenue and profit for business. ...read more.

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