Accounting and Finance Analysis of Finance

We have now arrived in the wonderful world of Accounting and Finance! This section is generally a lot less wordy but relies on you learning formulas and methods of working things out as well.

Costs

As with any Business their will always be costs. What you need to know for the exam is that costs can be split up into a variety of different categories.

Fixed Costs- Fixed costs are defined as costs which do not change in relation to output. For example: Salaries or gas bills.

Variable Costs- Variable costs are defined as costs which do vary with output. For example: raw materials or packaging.

Direct Costs- Direct costs are costs which can be directly attributed to the production of a particular product and allocated to a particular cost centre. I.E Piece rate pay.

Indirect Costs- Indirect costs cannot be as closely allocated in this way. Indirect costs may also be known as overheads. I.E. marketing

There are a few formulas which you need to know for cost, they are simple but their also very important so they should be learnt.

Total Cost = Fixed Cost + Variable Cost
(TC)        =      (FC)      +       (VC)

Average Cost = Total Cost
(AC)               Output

Another aspect which businesses have to control is Revenue and Profit which are two completely different things. These formulas should help to stop you from getting them confused.

Revenue = Price x Quantity (of sales)
(R)      =   (P)  x      (Q)

This is the formula for Revenue.

Profit = Revenue  Total Cost
(P)   =      (R)     -     (TC)

This is the formula for Profit.