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Costs & Revenue. Chapter 31. 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. Indirect Costs.

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Costs revenue

Costs & Revenue

Chapter 31


Direct costs
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.


Indirect costs
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.


Types of indirect costs
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


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


Marginal Costs

  • The extra cost of producing one more unit of output


Revenue
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


Contribution to fixed costs
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


Activity
Activity

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


Activity1
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.


Socrative room number 971865
Socrative:Room Number: 971865


Homework
Homework

  • Activity 31.4 Questions 1,2 and 3 page 330


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