IB Business Management Topic 3.3.1 Types of Costs Revision Notes (SL/HL)

IB Business Management Topic 3.3.1 Types of Costs Revision Notes (SL/HL) | RevisionDojo

Written by official IB examiners

Understanding Types of Costs in Business

To run a bakery, you’ve rented a cozy space, hired staff, and stocked up on ingredients.
Some expenses, like rent, stay the same no matter how many croissants you sell, while others, like ingredients, increase with production.
Understanding the different types of costs: fixed, variable, direct, and indirect is essential for managing your finances and making informed decisions.

Definition

Costs

A cost refers to the expenditure a business incurs while producing goods or services. Typical costs include payments for raw materials, wages, rent, and fuel.

Set-up Costs vs. Running Costs

Definition

Set Up Costs

The initial expenses incurred when starting a business, such as purchasing equipment, legal fees, and branding costs.

Examples of Set-up Costs

Purchasing equipment and machinery
Software setup and IT infrastructure
Legal fees (e.g., business registration, permits)
Employee training for new processes

Definition

Running Costs

The ongoing expenses required to operate a business, including salaries, rent, utilities, and maintenance.

Running costs, also known as operating costs, are the ongoing expenses required to maintain day-to-day business operations.

Examples of Running Costs

Salaries and wages for employees
Rent and utilities (electricity, water, internet)
Raw materials and supplies
Maintenance and repair expenses

Tip

"Costs" refer to expenses incurred to produce goods or services, while "price" is the selling price that includes profit.

Exam technique

Avoid circular definitions.
For instance, don’t write, “Set-up costs are costs for setting up a business.” Clearly define terms with examples to gain marks.

Fixed Costs: Expenses That Don’t Change with Output

Definition

Fixed costs

Fixed costs remain constant, regardless of production levels.

They do not vary but become more efficient when spread over higher production volumes.

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Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Duis aute irure dolor in reprehenderit

Duis aute irure dolor in reprehenderit in voluptate velit esse cillum dolore eu fugiat nulla pariatur. Excepteur sint occaecat cupidatat non proident, sunt in culpa qui officia deserunt mollit anim id est laborum.

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Nemo enim ipsam voluptatem quia voluptas sit aspernatur aut odit aut fugit, sed quia consequuntur magni dolores eos qui ratione voluptatem sequi nesciunt. Neque porro quisquam est, qui dolorem ipsum quia dolor sit amet, consectetur, adipisci velit.

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris nisi ut aliquip ex ea commodo consequat.

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

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Understanding Types of Costs in Business

To run a bakery, you’ve rented a cozy space, hired staff, and stocked up on ingredients.
Some expenses, like rent, stay the same no matter how many croissants you sell, while others, like ingredients, increase with production.
Understanding the different types of costs: fixed, variable, direct, and indirect is essential for managing your finances and making informed decisions.

Definition

Costs

A cost refers to the expenditure a business incurs while producing goods or services. Typical costs include payments for raw materials, wages, rent, and fuel.

Set-up Costs vs. Running Costs

Definition

Set Up Costs

The initial expenses incurred when starting a business, such as purchasing equipment, legal fees, and branding costs.

Examples of Set-up Costs

Purchasing equipment and machinery
Software setup and IT infrastructure
Legal fees (e.g., business registration, permits)
Employee training for new processes

Definition

Running Costs

The ongoing expenses required to operate a business, including salaries, rent, utilities, and maintenance.

Running costs, also known as operating costs, are the ongoing expenses required to maintain day-to-day business operations.

Examples of Running Costs

Salaries and wages for employees
Rent and utilities (electricity, water, internet)
Raw materials and supplies
Maintenance and repair expenses

Tip

"Costs" refer to expenses incurred to produce goods or services, while "price" is the selling price that includes profit.

Exam technique

Avoid circular definitions.
For instance, don’t write, “Set-up costs are costs for setting up a business.” Clearly define terms with examples to gain marks.

Fixed Costs: Expenses That Don’t Change with Output

Definition

Fixed costs

Fixed costs remain constant, regardless of production levels.

They do not vary but become more efficient when spread over higher production volumes.

Definition

Paywall

(on a website) an arrangement whereby access is restricted to users who have paid to subscribe to the site.

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Note

Lorem ipsum dolor sit amet, consectetur adipiscing elit, sed do eiusmod tempor incididunt ut labore et dolore magna aliqua. Ut enim ad minim veniam quis nostrud exercitation.

Excepteur sint occaecat cupidatat non proident

Tip

Lorem ipsum dolor sit amet, consectetur adipiscing elit.
Sed do eiusmod tempor incididunt ut labore et dolore magna aliqua.
Ut enim ad minim veniam, quis nostrud exercitation ullamco laboris.
Duis aute irure dolor in reprehenderit in voluptate velit esse cillum.

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

IB Business Management 3.3.1 Types of Costs Notes

Unit 1: Introduction to Business Management - Core operational components and business functions6 subtopics

Unit 2: HR Management - Motivation, Structure, Hierarchy7 subtopics

Unit 3: Financial Management - Accounting, Ratio evaluation, Core Financial Documents9 subtopics

Unit 4: Marketing Management - The 7 P's, strategies and forecasting6 subtopics

Unit 5: Operations Management - Production Methods, Production planning and management9 subtopics

BM Toolkit - Core business frameworks and tools15 subtopics

Understanding Types of Costs in Business

Set-up Costs vs. Running Costs

Examples of Set-up Costs

Examples of Running Costs

Fixed Costs: Expenses That Don’t Change with Output

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account

Understanding Types of Costs in Business

Set-up Costs vs. Running Costs

Examples of Set-up Costs

Examples of Running Costs

Fixed Costs: Expenses That Don’t Change with Output

anim nostrud sit dolore minim proident quis fugiat velit et eiusmod nulla quis nulla mollit dolor sunt culpa aliqua

Duis aute irure dolor in reprehenderit

Excepteur sint occaecat cupidatat non proident

Unlock the rest of this chapter with a free account