3.3 Costs and revenues

Fixed costs do not change with output in the relevant range; variable costs change as output changes; total cost is fixed cost plus variable cost. Direct costs can be traced to a product, while indirect costs are shared overheads.

Rent and core administration may remain when output is zero, whereas raw materials and packaging usually rise with units. Variable cost is not guaranteed to rise proportionally: purchasing economies or capacity limits can change the slope.

If fixed cost is $4,000 and variable cost for 500 units is$2,500, total cost is $6,500. A manager can then ask whether an extra unit adds only its direct variable cost or also triggers a new shift, machine or delivery overhead.

Fixed means constant over a chosen activity range, not forever; variable does not mean every cost rises smoothly. Classify the cost in context and state the output range before drawing a conclusion.

Sales revenue is quantity sold multiplied by selling price over a period. Revenue streams are other recurring or occasional inflows such as subscriptions, donations, dividends, sponsorship or advertising.

A business with several products should calculate each quantity–price stream and then add them. Revenue is the top-line inflow; profit still depends on the costs required to earn it and on the timing of cash collection.

If 39,264 packs sell at £8.75 and 4,275 tonnes at £123.95, calculate each stream separately and add the results. A subscription service may have predictable revenue, while donations or advertising depend on different customers and conditions.

Higher revenue does not prove higher profit or liquidity. Check units, price, volume, discounts, timing and the costs attached to the activity before judging performance.