Costs and Revenue

Costs and revenues

5 OPERATIONS MANAGEMENT

31This chapter covers syllabus section 5.2

SETTING THE SCENEOn completing this chapter you should be able to:

Cutting costs to increase profi tsThree important international businesses have recently announced cost reductions that will increase the chances of them making profi ts. Despite disappointing sales trends at its stores due to less consumer spending, Gap has reported an increase in quarterly net profi t. This is the result of cost cuts – it is holding less stock, so variable costs are lower and fi xed operational expenses such as management salaries have also been cut back.

Vodafone aims to save nearly $2 billion in costs after reporting a poor six-monthly performance. The mobile phone operator said UK profi ts over this period had halved to about $260 million. Jobs will be cut in the company. It will also spend less on promotion chasing new customers – it will instead focus on trying to get existing customers to use their phones more. This is a cheaper method of promotion.

Ryanair, Europe’s leading low-cost operator, announced that it would just break even this year – no loss but no profi t either – if the oil price stays below $100 a barrel. The recent fall in the price of oil – a huge variable cost for all airlines – means that Ryanair will not be forced to increase fares again.

Source: http://www.guardian.co.uk and http://newsvote.bbc.uk (adapted)

● explain and give examples of the different types of production costs

● explain the meaning of revenue and comment on sources of revenue for different fi rms

● understand the uses to which cost data can be put

● explain and calculate the contribution to fi xed costs

● explain the nature of cost and profi t centres and analyse their value

● analyse product viability using contribution analysis.

Points to think about:

● Using these cases, why is it important for a business to be able to identify and calculate its costs?

● Why do you think it is important for a company to cut costs during periods of low sales?

● Using Gap as starting point, explain which are likely to be the easiest types of costs for a business to cut back on.

● If oil prices increased again, would you advise Ryanair to increase passenger fares to try to raise revenue? Explain your answer.

324

● ep

●H

● au

●H


325

IntroductionManagement decisions can cover a wide range of issues and they require much information before effective strat-egies can be adopted. These business decisions include location of the operations, which method of production to use, which products to continue to make and whether to buy in components or make them within the business. Such decisions would not be possible without cost data. Here are some of the major uses of cost data:

Business costs are a key factor in the ‘profi t equation’. ●

Profi ts or losses cannot be calculated without accurate cost data. If businesses do not keep a record of their costs, then they will be unable to take profi table deci-sions, such as where to locate.Cost data are important to departments, such as ●

marketing. Marketing managers will use cost data to help inform their pricing decisions.Keeping cost records also allows comparisons to be ●

made with past periods of time. In this way, the effi -ciency of a department or a product’s profi tability may be measured and assessed over time.Past cost data can help to set budgets for the future. ●

These will act as targets to work towards for the depart-ments concerned.Cost variances can be calculated by comparing cost ●

budgets with actual data.Comparing cost data can help a manager make deci- ●

sions about resource use. For example, if wage rates are very low, then labour-intensive methods of production may be preferred over capital-intensive ones.Calculating the costs of different options can assist ●

managers in their decision-making and help improve business performance.

Production costsTYPES OF FINANCIAL COSTSThe fi nancial costs incurred in making a product or providing a service can be classifi ed in several ways. Cost classifi cation is not always as clear cut as it seems and allocating costs to each product is not usually very straightforward in a business with more than one product. Some costing methods require this allocation to be made, some do not.

Before we can begin to use cost data to assist in making important decisions, it is important to understand the different cost classifi cations. The most important categories are:

direct costs ●

indirect costs ●

fi xed costs ●

variable costs ●

semi-variable costs ●

marginal costs. ●

Direct costs

KEY TERM

direct costs these costs can be clearly identifi ed with each unit of production and can be allocated to a cost centre

One of the direct costs of a hamburger in a fast-food ●

restaurant is the cost of the meat.One of the direct costs for a garage in servicing a car is ●

the labour cost of the mechanic.One of the direct costs of the business studies depart- ●

ment is the salary of the business studies teacher.

The two most common direct costs in a manufacturing business are labour and materials. The most important direct cost in a service business, such as retailing, is the cost of the goods being sold.

Indirect costs

KEY TERM

indirect costs costs which cannot be identifi ed with a unit of production or allocated accurately to a cost centre – also known as overhead costs

Indirect costs are often referred to as overheads. Examples are:

One indirect cost to a farm is the purchase of a tractor. ●

One indirect cost to a supermarket is its promotional ●

expenditure.One indirect cost to a garage is the rent. ●

One indirect cost of running a school is the cost of ●

cleaning it.

They are usually classifi ed into four main groups:

Production overheads – these include factory rent and ●

rates, depreciation of equipment and power.Selling and distribution overheads – these include ●

warehouse, packing and distribution costs and salaries of sales staff.Administration overheads – these include offi ce rent ●

and rates, clerical and executive salaries.Finance overheads – these include the interest on loans. ●

HOW ARE COSTS AFFECTED BY THE LEVEL OF OUTPUT?It is important for management to understand that not all costs will vary directly in line with production increases or decreases. In the short run − the period in which no

Costs and revenues31

326

changes to capacity can be made − costs may be classi-fi ed as follows:

Fixed costs – these remain fi xed no matter what the ●

level of output, such as rent of premises.Variable costs – these vary as output changes, such as ●

the direct cost of materials used in making a washing machine or the electricity used to cook a fast-food meal.Semi-variable costs – these include both a fi xed and a ●

variable element, e.g. the electricity standing charge plus cost per unit used, sales person’s fi xed basic wage plus a commission that varies with sales.Marginal costs – these are the additional variable costs ●

of producing one more unit of output.

KEY TERMS

fi xed costs costs that do not vary with output in the short runvariable costs costs that vary with outputsemi-variable costs costs that have both a fi xed cost and a

variable cost elementmarginal costs the extra cost of producing one more unit

of output

ACTIVITY 31.1

Types of costs

18 marks, 23 minutes

1 Identify one indirect/overhead cost for each of these businesses:a a building fi rmb a high-street bankc a TV repairerd an oil-fi red power station. [4]

2 Explain why the cost is indirect in each case. [4]

3 Identify one direct cost for each of these business activities:a a carpenter making a wardrobeb an insurance company issuing a new motor

insurance policyc a brewery delivering beer to a hoteld a bank agreeing an overdrafte an oil-fi red power station. [5]

4 Why do you think it is important to identify the direct costs of producing a product? [5] Oil-fi red power station in Cyprus – indirect costs are a very high

proportion of total costs in electricity generation

Revenue

KEY TERMS

revenue the income received from the sale of a producttotal revenue total income from the sale of all units of the

product = quantity × price

Revenue is not the same as cash in a cash-fl ow fore-cast unless all goods have been sold for cash. Revenue is recorded on a fi rm’s accounts whether the cash has been received from the customer/debtor or not. Revenue is not the same as profi t either. All costs of operating the busi-ness during a time period have to be subtracted from total revenue to obtain the profi t fi gure.

A business may receive income from sources other than its normal operating activities, for example from:

the sale of non-current or fi xed assets no longer required ●

rent from factory or offi ce space to another business ●

dividends on shares held in another business ●

interest on deposits held in a bank. ●


327

Contribution to fi xed costsThis is an important business concept – and must never be confused with profi t. The contribution of a product refers to how much it contributes to the fi xed costs and profi t of the business once variable costs have been covered. It can be calculated either per unit of output or in terms of total contribution of all units produced.

KEY TERMS

contribution per unit selling price of a product less variable costs per unit

total contribution total revenue from sale of a product less total variable costs of producing it

Why is contribution not the same as profi t? You can see that an important cost has not been considered – fi xed cost. Profi t is calculated by subtracting all costs (fi xed and vari-able) from revenue. Contribution ignores fi xed costs and only considers any surplus left once variable costs have been subtracted from revenue. Hence, contribution is what a product contributes towards the fi xed costs of the busi-ness and, once these are paid, the profi ts of the business.

Costing productsManagers need to know, as accurately as possible, the cost of each product or service produced by the fi rm. One

reason for this is the need to make a pricing decision. In fact, buyers of many products will want an estimated price or a quotation before they agree to purchase. Managers may also need to decide whether production should be stopped, stepped up or switched to new methods or new materials. Managers also need to compare actual product costs with original budgets and to compare the current period with past time periods.

In calculating the cost of a product, both direct labour and direct materials are often easy to identify and allo-cate to each product. For instance, the materials used in making product X are allocated directly to the cost of that product. These are not the only costs involved. Overheads, or indirect costs, cannot be allocated directly to each product but must be ‘shared’ between all of the items produced by a business. There is more than one costing method that can be used to apportion these costs and, therefore, there may be more than one answer to the question: ‘How much does a product cost to produce?’

EXAM TIP

The only costing method required in the IB examination is contribution costing.

ACTIVITY 31.2

Classifying costsThe management of a furniture manufacturing fi rm is trying to classify the costs of the business to help in future decision-making. It makes a range of wooden tables and chairs. You have been asked to assist in this exercise.

Cost Direct Indirect Fixed Variable

Rent of factory

Management salaries

Electricity

Piece-rate labour wages of production staff

Depreciation of equipment

Lease of company cars

Wood and other materials used in production

Maintenance cost of special machine used to make one type of wooden chair


1 Classify these costs by ticking in the appropriate boxes in the following table. [8]

2 Explain why you have classifi ed these costs in the way you have. [8]


328

H HIGHER LEVEL

COST AND PROFIT CENTRESBefore studying an important costing method, two important concepts need to be understood.

1 Cost centres

KEY TERM

cost centre a section of a business, such as a department, to which costs can be allocated or charged

Examples of cost centres are:

in a manufacturing business – products, departments, ●

factories, particular processes or stages in the produc-tion, such as assemblyin a hotel – the restaurant, reception, bar, room letting ●

and conference section.

Different businesses will use different cost centres that are appropriate to their own needs.

2 Profi t centres

KEY TERM

profi t centre a section of a business to which both costs and revenues can be allocated

Examples of profi t centres are:

each branch of a chain of shops ●

each department of a department store ●

in a multi-product fi rm, each product in the overall ●

portfolio of the business.

Why do businesses divide operations into cost and profi t centres?If an organisation is divided into these centres, certain benefi ts are likely to be gained:

Managers and staff will have targets to work towards – ●

if these are reasonable and achievable, this should have a positive impact on motivation.These targets can be used to compare with actual ●

performance and help identify those areas performing well and those not so well.The individual performances of divisions and their ●

managers can be assessed and compared.

Work can be monitored and decisions made about ●

the future. For example, should a profi t centre be kept open or should the price of a product be increased?

However, the following problems might arise when using these centres:

Managers and workers may consider that their part ●

of the business to be more important than the whole organisation itself. There could be damaging compe-tition between profi t centres to gain new orders.Some costs – indirect costs – can be impossible to allo- ●

cate to cost and profi t centres accurately and this can result in arbitrary and inaccurate overhead cost allo-cations.Reasons for good or bad performance of one particular ●

profi t centre may be due to external factors not under its control.

EXAM TIP

You may be asked to evaluate the usefulness of dividing a busi-ness into cost or profi t centres.

Contribution costing approach

KEY TERM

contribution costing costing method that only allocates direct costs to cost/profi t centres not overhead costs

This approach to costing solves the problem of how to apportion or divide overhead costs between products – it does not apportion them at all. Instead, the method concen-trates on two very important accounting concepts:

Marginal cost is the cost of producing an extra unit. ●

This extra cost will clearly be a variable direct cost. For example, if the total cost of producing 100 units is $400 000 and the total cost of producing 101 units is $400 050, the marginal cost is $50.The contribution to fi xed costs and profi t. This is the ●

revenue gained from selling a product less its vari-able direct costs. This is not the same as profi t, which can only be calculated after overheads have also been deducted. For example, if that 101st unit with a vari-able (marginal) cost of $50 is sold for $70, it has made a contribution towards fi xed costs of $20. The unit contri-bution is found as the difference between the sale price ($70) and the extra variable cost ($50), that is $20.


329

CONTRIBUTION COSTING AND DECISION-MAKINGContribution costing has very important advantages over full costing when management plans to take important decisions based on cost data. An example contribution costing statement is shown in Table 31.1.

Therefore, the business has made a profi t of $3000.

This link between contribution to overheads and profi t is a crucial one and you can see the role of contribution costing in pricing decisions if you read the pricing section in Chapter 27 ‘Price’ (see page 282).

MULTI-PRODUCT FIRMS – ASSESSING VIABILITY OF EACH PRODUCTIf a business makes more than one product or provides more than one service, contribution costing shows managers which product or service is making the greatest or least contribution to overheads and profi t. If all costs, including overheads, were divided between the products instead, a manager could decide to stop producing a product that seemed to be making a loss, even though it might still be making a positive contri-bution. Activity 31.4 – some of which has been worked out for you – illustrates this point.

Should a business accept a contract or a purchase offer at below full cost?If a fi rm has spare capacity or if it is trying to enter a new market segment, marginal costing assists managers in deciding whether to accept an order at below the full cost of the product or service. Hotels often offer very low rates to customers in off-peak seasons, arguing that it is better to earn a contribution from additional guests than to leave rooms empty.

If contracts are accepted or customers gained by using prices below full unit cost, this can, in certain circum-stances, lead to an increase in the total profi ts of the

ACTIVITY 31.3

Cost centres at school


1 Identify and list four possible cost centres within your own school or college. Discuss with the managers or heads of these cost centres the benefi ts and drawbacks of using this form of organisation. Check with your bursar/college accountant the accuracy of your answer. [4]

2 Explain the difference between a cost centre and a profi t centre. [4]

3 Explain whether any of the cost centres identifi ed in question 1 above are, in fact, profi t centres. Explain your answer. [4]

Novel Textbook

$000

Sales revenue 50 100

Direct materials 15 35

Direct labour 20 50

Other direct costs 10 5

Total marginal cost 45 90

Contribution 5 10

Table 31.1 Marginal costing/contribution statement for Cambridge

Printers Ltd

As can be seen in Table 31.1, this statement avoids allo-cating overhead costs between these two products. Over-heads cannot be ignored altogether, however. They are needed to calculate the profi t or loss of the business:

Total contribution for Cambridge Printers Ltd = $15 000If total overheads amounted to $12 000, then:

profi t = contribution – overheads This hotel in Scotland may offer reduced rates in the off-season months


330

business. This is because the fi xed overhead costs are being paid anyway and if an extra contribution can be earned, profi ts will increase. There are dangers in this policy, however:

Existing customers may learn of the lower prices being ●

offered and demand similar treatment. If all goods or services being sold by a business are sold at just above marginal cost, then this could make earning a profi t very unlikely.When high prices are a key feature in establishing the ●

exclusivity of a brand, then to offer some customers lower prices could destroy a hard-won image.Where there is no excess capacity, sales at contribu- ●

tion cost may be losing sales based on the full cost.In some circumstances, lower priced goods or services ●

may be resold into the higher priced market.

The following example illustrates this principle of using contribution in accepting new business:

Yelena is a dressmaker who pays $45 a day to use a work-shop. This covers all the fi xed costs of her small busi-ness. She makes three dresses a day and sells them for $30 each. Materials cost her $8 a dress. So, unit costs per dress using full costing are:

Fixed costs per dress $15Material cost $8Unit cost $23

One day she has orders for only two dresses. Today, a new customer telephoned and wants to buy a dress but will only pay $20. Should she accept this order? Surely she will make a loss on this dress?

If she does not accept the order, she will make a loss of $1 today: {2 × $30 – (2 × $8 + $45)}

If she does accept the order, she will make a profi t of $11: {2 × $30 + $20} – {3 × $8 + $45}

EXAM TIP

Remember, fi xed costs have to be paid whether the factory or workshop is busy or not.

ACTIVITY 31.4

Should product Z be dropped?An electrical assembly fi rm produces three products. The following data (in $) are available:

Products X Y Z

Unit direct costs:

Labour 5 7 9

Materials 4 12 10

Selling price 20 30 21

Current annual output (units) 500 1000 400

Total overhead costs are $10 000. The company currently uses full costing and each product is apportioned a proportion of overheads on the basis of fl oor space taken up: X 30%, Y 50%, Z 20%.


1 Calculate the unit contribution of each product:Answer: X = $20 – $9 = $11Calculate the unit contribution of Y and Z. [4]

2 If annual output is all sold, calculate the total contribution of each product.Answer: X = 500 × $11 = $5500Calculate the total contribution of Y and Z. [4]

3 Calculate the profi t or loss made by each product using full costing at the current output level.Answer: X: total contribution = $5500. Allocated overheads = 30% of $10 000 = $3000Total profi t on product X = $2500Calculate the profi t or loss made by Y and Z. [6]

4 Calculate the impact on the total profi t of the business if production of product Z is stopped. (Do not forget that the overhead costs allocated to product Z will still have to be paid.) [6]


331

ACTIVITY 31.5Read the case study below and then answer the questions that follow.

Bureau Offi ce Supplies LtdThe marketing director was determined to gain a large order for computer desks from a major local authority. There was spare capacity on the production line as a recent contract had just been cancelled. The buyer wanted to purchase 1000 desks at a price of $70 each. Bureau’s marketing director knew this was a price lower than that offered to most of its customers. The order was being discussed at a board meeting and the production manager presented the following cost data:

Computer desks full unit cost statement

Direct labour $25

Direct materials $30

Apportioned overheads $30

Full unit cost $85

The production manager was amazed at the willingness of the marketing department to sell the desks for $70 each. ‘How can you possibly justify selling these desks at a total loss of $15 000?’ he asked.

Who has the better case? Is the marketing director justifi ed in his attempt to capture this order? Is the

ACTIVITY 31.6Read the case study below and then answer the questions that follow.

Onyx GaragesThe managing director of Onyx Garages Ltd is concerned about the profi tability of the business. She asked for cost details of the three divisions of the business – repairs, petrol sales and spare parts – together with a breakdown of sales revenue. Unaware of the differences between costing approaches, she asked for overheads to be appor-tioned on full-cost principles according to labour cost. The following data were provided.

production manager right to be concerned at the apparent loss the order will make? The appropriate answer depends on the following factors:

Does the order make a contribution to overheads by the ●

price exceeding direct costs?Is there spare capacity? ●

Can the order be accepted without further overhead ●

expenditure – e.g. a special machine needed just to make goods for this order?Are other orders likely? ●

Is there another customer who is prepared to pay a ●

higher price for these goods?Will the price of the order become known to other ●

customers?


1 Use the contribution principle to calculate whether the new order will add to the profi ts of the business or not. [10]

2 Prepare a brief report, containing a contribution costing statement, to the board, together with a recommendation on whether to accept the order or not. Consider both quantitative and qualitative factors in coming to your recommendation. [15]

2010 ($000s) Repairs Petrol Parts

Sales revenue (A) 27 300 68

Direct labour cost 15 25 10

Direct materials 5 180 35

Other direct costs 4 10 5

Apportioned overheads (total $60 000)

18 30 12

Total cost (B) 42 245 62

Profi t/(Loss) (A – B) (15) 55 6


332

EXAM TIP

Remember, even though a positive contribution can be made by accepting an order, there are real dangers that other customers will fi nd out that a lower price is being offered on a particular contract. Qualitative factors are important too.

Using contribution costing – a summary

Overhead costs are not allocated to cost centres, so ●

contribution costing avoids inaccuracies and arbi-trary allocations of these costs.Decisions about a product or department are made ●

on the basis of contribution to overheads – not ‘profi t or loss’ based on what may be an inaccurate full-cost calculation.Excess capacity is more likely to be effectively used, as ●

orders or contracts that make a positive contribution will be accepted.

But:By ignoring overhead costs until the fi nal calculation of ●

the business’s profi t or loss, contribution costing does not consider that some products and departments may actually incur much higher fi xed costs than others. In addition, single-product fi rms have to cover the fi xed

When the managing director saw these details, she said, ‘If we close down our repair division, then total annual profi ts will rise – they would have been $15 000 higher last year if we had shut down repairs in 2010.’

overall profi t made by the business in 2009= (55 000 + 6000) – 15 000 = $46 000

As a trainee accountant working with this company, you have been asked for your opinion on the fi gures above.


1 Use the contribution costing method and produce a new costing statement. [10]

2 Do you agree with the managing director that the repairs division should be closed in order to increase overall garage profi ts? Justify your answer with both quantitative and qualitative reasons. [10]

costs with revenue from this single product, so using contribution costing is unlikely to be so appropriate.It emphasises contribution in decision-making. It may ●

lead managers to choose to maintain the production of goods just because of a positive contribution – perhaps a brand new product should be launched instead which could, in time, make an even greater contribution.As in all areas of decision-making, qualitative factors ●

may be important too, such as the image a product gives the business. In addition, products with a low contribution may be part of a range of goods produced by the fi rm and to cease producing one would reduce the appeal of the whole range.

H

THEORY OF KNOWLEDGE

Calculating costs and revenues is critical for a business to know where it is in terms of trading performance. It is another part of business that relies on the skill of the mathematician.

Discuss the importance of mathematics in facilitating business people knowing about their organisations.


● OVER TO YOU

REVISION CHECKLIST 1 Explain two reasons why cost data would be useful

for operations managers. 2 Distinguish between direct and indirect costs. 3 Distinguish between fi xed and variable costs. 4 Explain the differences between: revenue, contribu-

tion and profi t. 5 Using the following data, calculate the contribution

to overheads/profi ts made by a product:

Sales revenue $14 000Variable/direct material costs $6 000Variable/direct labour $4 000Overheads $3 000

Explain your result.

6 Explain the term ‘overheads’ and give three examples.

7 Distinguish between a profi t centre and a cost centre.

8 Analyse why the use of profi t centres might have signifi cant advantages for a multi-product business with several departments.

9 Explain the usefulness of contribution costing.10 Assume that fi rm A is offered a supply of essential

components by an outside supplier for a price less than the full cost of fi rm A making them. Explain why fi rm A might reject this offer.

REVISION ACTIVITYRead the case study below and then answer the questions that follow.

Cosmic CasesCosmic Cases manufacture a range of suitcases. There are four sizes of case, ranging from a small vanity case to a large luggage case with wheels for mobility. The cases are sold

mainly through department stores, either as a complete set or, more frequently, as individual items. The latest six-monthly costing statement (see below) had just been prepared, together with the sales fi gures for the same period. Jill Grealey, the managing director, was concerned about the performance of the medium-sized case and wanted to discuss the data with the fi nance director.

20 marks, 35 minutes1 Calculate the total revenue (price × quantity sold)

for each size of case. [4]

2 Calculate the total profi t/loss made by each size of case. [2]

3 Calculate the total contribution made by each size of case. [4]

4 Jill Grealey wanted to stop production of the medium-sized case. She said to the fi nance director, ‘If we stop making this case, then our total profi ts will rise.’ The fi nance director was convinced that this would be the wrong decision to make. As a management consultant, write a report to the managing director giving your recommendation for the action to be taken with the medium-sized case. You should justify your recommendation with both numerical and non-numerical factors. [10]

333

9H 9 0

H1 1H

4 Jm

4H

Costing statement for six months ending 31/3/2010

Vanity case Small suitcase Medium suitcase Large suitcase

Total direct costs $30 000 $35 000 $12 000 $20 000

Allocated overheads $15 000 $12 500 $10 000 $10 000

Total costs $45 000 $47 500 $22 000 30 000

Total output 5 000 4 000 1 000 1 500

The selling prices to the department stores were: Vanity case $15, Small case $18, Medium case $20, Large case $25

8 H

7 H


334

25 marks, 45 minutes1 Defi ne the following terms:

a mark-upb variable cost. [4]

2 Using the cost information from the text, calculate:a the full cost of the conference for

the Friends of the General Hospital (including the equipment hire) [4]

b the price that the hotel would normally charge for a conference of this size with the equipment requested [3]

c the profi t the hotel would make at the normal price [2]

d the contribution to the hotel’s overheads and profi t if the conference suite were let out for $2200. [3]

3 Using monetary and non-monetary information evaluate Sheila Burns’s decision to offer the hospital the conference facilities at the reduced price. [9]

MIDTOWN IMPERIAL HOTEL‘We would be mad to accept this special request at $1850 below our normal price and $500 below the cost of providing the confer-ence facilities and equipment hire.’

The hotel manager, Rajesh, was annoyed that Sheila Burns, the conference manager of the Imperial Hotel, had even bothered to consult him about the enquiry from the Friends of General Hospital for the use of the conference suite for their annual general meeting involving 100 people. Sheila had been asked for a price to organise the Friends’ AGM and had used the normal hotel prac-tice of adding a 50% mark-up to the total cost of the facility. This had been too much for the charity, so they had requested a reduc-tion and had suggested a lower fi gure of $2200. As the AGM was planned for the end of February, a very slack time for all hotels, Sheila had been tempted to take up the offer and had put it to Rajesh for his approval. She knew that many of the Friends were quite infl uential people with business interests and she believed that this could be to the hotel’s long-term advantage.

The costing statement for the conference suite was as follows:

Variable cost per delegate including food, three drinks each and waiting staff $15

Hotel overhead allocation per conference $1000In addition, the Friends had requested some special audiovisual

equipment, which the hotel would have to hire in for the day at a cost of $200

EXAM PRACTICE QUESTIONRead the case study below and then answer the questions that follow.

3 3H

Costs and Revenue

Documents

Transcript of Costs and Revenue