1
Q
What does cost mean?
A
The charge to a business of making a product or providing a service
2
Q
What do businesses want to know about costs?
A
- what does it cost to produce their product/service?
- what are the potential costs of potential business decisions?
- what effect would a change in costs have on a business?
3
Q
Why are costs important?
A
- they’re the things that drain away the profits made
- difference between good and poor profit margin
- main cause of cash flow problems in small businesses
- change as the activity of a business does - entrepreneur needs to know how these are likely to change
4
Q
What are the two types of cost?
A
- fixed costs: don’t change when output does
- variable costs: do change when output does
(Some fall into two categories so are semi-variable)
5
Q
What are some examples of fixed costs?
A
- research and development
- insurance
- IT
- Marketing
- consultants/advisers
- legal fees
- accounting fees
- bank charges
- rent/mortgage
- salaries
6
Q
What are some examples of variable costs?
A
- raw materials
- utilities
- distribution costs
- wages
- non price promotions
- salesman’s commission
7
Q
What are total costs?
A
The overall amount a business has to pay out to produce a product or service
Total costs = fixed costs + variable costs
