IB Business Management – 3.3 Costs and Revenue

Welcome to 3.3 Costs and Revenue

This interactive workbook follows the IB BM syllabus and the Surridge & Gillespie chapter on costs and revenue.

Step 1: Use 3.3 Overview for the big picture.
Step 2: Work through Cost & revenue basics and Types of cost with quick checks.
Step 3: Complete 3 cost & profit practices and the classification practice.
Step 4: Use the Flashcard studio to secure key vocabulary.
Step 5: Take the 20-question quiz and review explanations.

Exam link Being quick and accurate with costs, revenue and profit is vital for data-response questions and for later topics such as break-even and investment appraisal.

You can jump to any section from the navigation on the left.

3.3 Overview – Costs, revenue and profit

Linking day-to-day operations to business survival.

In this topic you should be able to:

Define and calculate fixed costs, variable costs, total costs and average cost.
Define and calculate revenue, especially total revenue.
Calculate profit from data and interpret the result.
Classify typical business expenses as fixed or variable in context.

Quick check: Profit in its simplest form is equal to:

Exam tip Even when a question looks like “just” a calculation, examiners often reward comments on what the figure means for the business.

Cost & revenue basics – key formulas

Start with the core relationships used throughout IB Business Management.

Costs Revenue Profit

Key definitions

Fixed costs (FC): do not change with the level of output (e.g. rent, salaries of permanent staff).
Variable costs (VC): change directly with output (e.g. raw materials, packaging).
Total costs (TC): FC + VC.
Total revenue (TR): price per unit × quantity sold.
Profit: TR − TC.

Quick check 1: A firm sells a product for $20 and sells 800 units. Total revenue is:

Quick check 2: Fixed costs are best described as costs that:

Quick check 3: Total costs equal:

Exam tip Write the basic formulas at the top of your working space in calculation questions to keep your logic clear.

Types of cost – fixed and variable

Classifying costs helps managers understand how profits will change as output changes.

Fixed vs variable (and others)

Fixed costs: rent, insurance, management salaries, loan interest.
Variable costs: raw materials, components, packaging, piece-rate wages.
Semi-variable costs: have a fixed element and a variable element (e.g. phone contracts with a fixed line rental plus call charges).
Direct costs: can be clearly traced to a particular product (e.g. flour for bread).
Indirect costs / overheads: cannot be traced to one product (e.g. office lighting).

Quick check 1: Which of the following is most likely to be a variable cost?

Quick check 2: The salary of the managing director is usually classified as:

Quick check 3: Telephone charges that include a fixed line rental plus a charge per minute are:

Quick check 4: Which cost is most likely to be an indirect (overhead) cost?

Exam tip When you are asked to classify a cost, always think about how it behaves as output changes and whether it can be traced to one product.

Practice – Calculating costs, revenue and profit

Use the data for each business to calculate variable costs, fixed costs, total revenue and profit.

Practice – Classifying fixed and variable costs

For each business, decide whether each cost item is fixed (F) or variable (V) in the context given.

Flashcard studio – Costs & revenue vocabulary

Flip cards to move between term and definition. Focus is on syllabus language from 3.3.

End-of-topic quiz – 3.3 Costs and Revenue (20 questions)

Questions move from key definitions to simple calculations and evaluation. Each answer has a brief explanation.