Theory on Business CostsFor Lesson 10

Business Costs

Some sources of finance will be available as soon as the business starts up

Some sources are only available in the longer term

CostsCosts are the expenses involved in making a product.

Firms incur costs by trading.

Costs of Running a Business

There are two different types of cost that a business will face:

Start-up Costs

Running Costs

Start-up Costs

These are “one-off” costs that have to be paid when a business sets up, they include:

Premises - very expensive! Machinery and equipment Fixtures and fittings Market Research and Promotion

Running Costs

These are the costs incurred on a day to day bases, they include:

Sales and Marketing (e.g. advertising) Administration (e.g. insurance, rent, postage) Production (e.g. raw materials) Human Resources (e.g. wages, training) Finance (e.g. loan repayments)

Fixed Costs Costs which do not vary with output produced.

Fixed Costs

SalariesRent and council taxMachinery and equipment

Variable Costs

Costs which change directly with the number of products made by a business.

Variable Costs

Raw MaterialsEnergyPiece-rate labour

Total Costs

All costs of a business

Total Costs = Fixed Costs + Variable Costs

Video

Watch this video:

http://www.bbc.co.uk/learningzone/clips/what-costs-are-involved-in-a-business/10961.html

Fixed or Variable Activity

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