Essay on Types Of Business Costs

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Pages: 5
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Start up cost
Are ‘one-off’ costs paid for when you start up a new business E.g. School –
• School building
• whiteboards
• Chairs
• Tables

Running costs
Are day-to-day costs paid for to run the business

E.g. School –
• Paper
• Books
• Electricity + heating • Food.

Start-up costs in

Running costs in

Business

Business

• Market research – to assess business potential.
• Premises.
• Building alterations –Expansion, decorate. • Fixture and fittings –Shelving, floor, toilets.
• Furniture and equipment – desks, counters, till, computers.
• Communication equipment – telephone, fax.
• Vehicles
• licenses./ permits – gambling license or alcohol license.

• Owners salary.
• Staff salary/wages.
• Insurance payments.
• Rent or mortgage repayments.
• Business rates – this is a tax to
• the local council i.e. Camden.
• Stock – raw materials.
• Gas, electricity, water rates.
• Communication charges –
Telephone and internet charges.
• Loan repayments
• Packaging material – bags
• Cleaning equipment – window cleaner, polish.
• Account fees – check whether the business is make a profit or loss

What are the start-up and running costs for:
• Footlocker

• Ice cream shop

• Gym

Business costs
Footlocker
Start up

Running

Gym
Start up

Running

Baskin and
Robins
Start up

Running

Paid back with profits earned by the business during the year

Start-up costs
Fixed costs
(Expenses)

Total costs

Running costs
Variable costs
(Cost of sales) Break-even analysis - Fixed – Variable costs
Profit and Loss account - Expenses – Cost of sales

Types of costs
Fixed costs: costs which do

Variable costs: Costs which not change regardless of how change with the number of many products you sell. (You products you sell. (The still HAVE to pay for them more you sell the higher even if the business has made the cost) no sales)

Rent on buildings

Raw materials/ Stock

Interest on loans

Packaging

Council tax

Wage - commission

Insurance payments
Wages each month

What are the costs involved in running a pizza • Direct cost:
A cost which can be clearly identified with a particular unit of output. Direct costs are known as variable costs • Indirect cost:
A cost which cannot be identified with a particular unit of output. It is often incurred by the whole organisation or department. Indirect costs are known as fixed costs.

Production of Nike Trainers
• Factory..

• Direct costs

Indirect costs

•

Direct costs
–

Direct material
•
•
•
•
•
•

–

Direct labour
•

•

Rubber
Cloth
Leather
Laces
Thread
Oil

Staff paid on commission

Indirect costs
•
•
•
•
•
•

Factory rent
Management wages
Security wages
Building insurance
Insurance on machines
Utility bills, electricity and telephone bill

TOTAL COSTS = FIXED COSTS + VARIABLE COSTS

For any business that aims to make a profit they use this simple formula:• Sales Revenue – Total cost = Profit
In other words

•

Sales Revenue – (fixed cost + Variable cost) = Profit

• Revenue – is the income a business earns from selling its goods/services • They use this money to pay for their Total costs (fixed and variable costs).
• Any money left after, is classed as PROFIT

Miss Patel’s Cookie store all cookies for £1

Sales Revenue
•

To calculate sales revenue you use the following formula:

•

Selling price x number of products sold

Examples 1
Sell cookies for £1
In march I sold 700 cookies
Answer: 1 x 700 cookies = £700
Example 2
Selling price for T-shirts - £24
In march they sold 1000 T-shirts
Answer: 24 x 1000 = £24,000

Miss Patel’s Cookie store all cookies
FC and for £1VC
Fixed cost

Cost

Variable cost to make ONE cookie

Cost

Rent

£2000

Flour

0.20p

Wages

£1000

Chocolate chips

0.10p

Bills

£410

Milk and Butter

0.20p

TOTAL

TOTAL

Miss Patel’s Cookie store

September Sales:
Sales revenue £1 x 4500 =

£ 4500

Fixed cost (rent, wages, bills) = £ 1200
Variable cost (dough, sugar,

£ 300

chocolate chips) =

PROFIT =

£ 3000 PROFIT IN
SEPT ONLY

Miss Patel’s Cookie store all
cookies
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