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BRCosts ≠ Expenses
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Here’s everything you need to know:
Costs:
→ Amount spent on acquiring, producing, or maintaining goods/services.
→ They are subtracted from revenue to determine the gross profits of a business.
Expenses:
→ Outflow of economic resources
→ Incurred by a business to generate revenue.
→ Are deducted from revenue to calculate net income.
Types of Costs:
1️⃣ Direct Costs:
Costs directly attributable to a specific product or service.
Ex: Manufacturing salaries, direct material costs.
2️⃣ Indirect Costs:
Costs are not directly tied to a product or service but contribute to overall business operations.
Ex: Utilities, rent, and managerial salaries.
Types of Expenses:
1️⃣ Operating Expenses:
Essential day-to-day costs for running the business.
Ex: Rent, utilities, salaries, office supplies, insurance, and marketing expenses.
2️⃣ Fixed Expenses:
Costs that remain constant irrespective of production or sales levels.
Ex: Rent, salaries of permanent staff, insurance premiums.
3️⃣ Variable Expenses:
Costs that vary with the level of production or sales.
Ex: Raw materials, hourly wages, and sales commissions.
Both costs and expenses are considered expenditures.
More details are in the graphic below!
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