Lecture Notes: Understanding Costs and Revenue Streams

Key Objectives

• Categorize Coasts: Learn to categorize all costs into two main groups.
• Revenue Streams: Learn where else income can come from besides product sales.

Assessment Objectives

• Both objectives focus on AO2 (Explain):
  • Explain different types of costs.
  • Explain different kinds of revenue streams.

Types of Costs

Costs are the amounts spent to acquire resources necessary for production or sales.

Categories of Costs

1. Fixed and Variable Costs
2. Direct and Indirect Costs

Fixed and Variable Costs

• Fixed Costs: Do not change with output levels. Examples include:
  • Internet fees (e.g., $1000/month regardless of production).
  • Can change due to factors unrelated to output (e.g., price hike from the provider).
• Variable Costs: Change in proportion to output. Examples include:
  • Cost of materials (e.g., wood for chairs).
  • Increase as production increases.

Direct and Indirect Costs

• Direct Costs: Can be traced to a specific product or project. Example:
  • Cost of wood for a specific furniture piece (direct and variable).
• Indirect Costs: Cannot be attributed to a specific product, cover the whole organization. Examples include:
  • Internet fees (overheads).

Summary

• Coasts in Two Categories: Every cost is either fixed/variable and direct/indirect.
• Cost Changes: Fixed cost changes are independent of output; variable cost changes depend on output.

Revenue Streams

Revenue is the money received from customers, not to be confused with profit (revenue minus costs).

Understanding Revenue

• Total Revenue: Price x Quantity sold.
• Average Revenue: Total revenue divided by quantity.

Alternative Revenue Streams

1. Dividends: Earnings from holding shares in other companies.
2. Interest: Income from depositing money in banks.
3. Merchandise: Selling associated products (e.g., Disney toys).
4. Donations: Major for non-profits, significant for some online creators.
5. Sponsorship Deals: Payments for advertising, such as logos on sports uniforms.
6. Advertising Revenue: Income from selling ad space, e.g., Telegram's ads.
7. Subscriptions: Recurring income from services (e.g., Apple Music).
8. Royalties: Earnings from intellectual property or franchise rights.
9. Rental Income: Income from leasing property to others.

Summary

• Varied Sources: Different revenue streams work for different organizations.
• Recall & Explain: Be able to recall and explain these revenue streams.

Conclusion

• Main objectives were to categorize types of costs and explain diverse revenue streams.
• Ensure understanding of fixed, variable, direct, and indirect costs, and be able to explain various revenue streams.