To calculate costs and expenses, businesses need to consider both direct and indirect costs. Direct costs are those that are directly related to the production or delivery of a product or service, such as materials, labor, and shipping. Indirect costs are those that are not directly tied to a specific product or service, such as overhead expenses like rent, utilities, and marketing.
Once all costs and expenses have been identified, businesses can calculate the total cost of production or delivery for each product or service. This can be used to determine the break-even point for each product or service, which is the point at which the revenue generated from sales equals the total cost of production or delivery. Beyond the break-even point, each sale generates a profit.