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Ib Business Management 3.3 Costs and Revenues

The document outlines the concepts of costs and revenues in business management, defining costs as expenditures incurred in production and revenues as income from sales. It categorizes costs into fixed, variable, and direct costs, each with their strengths and weaknesses, and discusses various revenue streams beyond core sales. Additionally, it highlights the importance of managing costs and maximizing revenue for business survival and strategic planning.

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13 views1 page

Ib Business Management 3.3 Costs and Revenues

The document outlines the concepts of costs and revenues in business management, defining costs as expenditures incurred in production and revenues as income from sales. It categorizes costs into fixed, variable, and direct costs, each with their strengths and weaknesses, and discusses various revenue streams beyond core sales. Additionally, it highlights the importance of managing costs and maximizing revenue for business survival and strategic planning.

Uploaded by

nishkkamehta11
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

IB BUSINESS MANAGEMENT

3.3 COSTS AND REVENUES


Definition Total costs of a business
Cost: the expenditure a business incurs in
producing goods/services.
Revenue: income earned from selling goods/services
(Price × Quantity).

Costs reduce profit; managing costs and


maximizing revenue is central to survival.

Types of costs
Fixed costs
Definition: do not change with output.
Strengths: predictable, stable for planning.
Weaknesses: high fixed costs increase break-
even point.
Variable costs
Definition: change directly with output.
Strengths: flexible, fall if production stops.
Revenue streams
Weaknesses: uncertainty if input prices
fluctuate. Definition: the different ways a business earns
Direct costs income, beyond core sales.
Definition: clearly linked to production of a There are 7 main types:
product/service. Sales revenue: core product/service sales (main
Strengths: easy to trace to unit of output. source).
Weaknesses: not all costs are clearly Subscriptions: recurring income (Netflix,
attributable (e.g., electricity shared across Spotify).
products). Advertising: selling ad space (YouTube, social
media).
Licensing/franchising: fees for using brand/IP.
Fixed costs: rent, insurance, salaries of Sponsorships: payment for brand association.
managers. Donations/grants: common for NGOs.
Variable costs: utilities, raw materials, Consulting/services: expertise-based income.
packaging Strengths: spreads risk, stabilizes income, supports
Direct costs: flour for bakery, growth.
components in car manufacturing Weaknesses: too many streams may dilute focus,
some are volatile.

Additional cost categories


Firms with multiple revenue streams
Indirect/overheads: not tied to a specific product
(e.g., Amazon: retail, AWS, ads) are less
(admin, advertising, utilities).
vulnerable to shocks.
Semi-variable costs: fixed + variable elements
Startups often begin with one stream,
(e.g., phone contracts: base fee + call charges).
then diversify once stable.
Total costs (TC) = Fixed costs + Variable costs.
Average costs (AC) = Total costs ÷ Output.
Revenue formula: Total revenue (TR) = Price × Practical exam interpretation
Quantity.
Cost structure shapes strategy: High fixed costs
push firms to maximize output (airlines, Netflix),
while high variable costs make firms flexible but
Not all variable costs are direct margins volatile (catering, crafts).
Cutting direct costs boosts unit margins

Scan the QR code for full IB BM notes & practice questions on [Link]

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