Class 11 Entrepreneurship Notes · CBSE
Types of Cost
Types of Cost — distinguish expenditure from expense, see how cost is derived from expense, and classify operational costs into fixed and variable depending on the business. CBSE Class 11 Entrepreneurship notes with machine depreciation and industry-context examples.
Last updated: 10 Sep 2026
Notes
Expenditure vs Expense — Numerical Distinctions
The same money outflow can be an expenditure on the day it happens and an expense spread over the time it is used. This distinction decides how sums treat machines, stock and prepaid bills.
| Expenditure | Expense | |
|---|---|---|
| Definition | Outflow of money for payments | Value of resource consumed to earn revenue |
| Scope | Includes assets AND consumed items | Subset — only consumed items |
| Timing | Single day (purchase day) | Spread over the period the asset is used |
| Worked Example | Expenditure | Expense |
|---|---|---|
| Machine purchase | ₹ 5,00,000 paid on the purchase day | Depreciation ₹ 50,000/year for 10 years |
| Raw material | 1,000 tons × ₹ 6,000 = ₹ 60,00,000 paid on the purchase day | 400 tons used = ₹ 24,00,000 cost of goods; ₹ 36,00,000 stays in inventory |
Cost is derived — allocated, not paid
Cost is what a business allocates to a product, not what it pays on a bill:Factory rent ₹ 50,000/month (an expense) allocated by area 50% / 30% / 20% → space cost of ₹ 25,000 / ₹ 15,000 / ₹ 10,000 per product.Insurance premium ₹ 1,20,000 paid upfront is a pre-paid expense → ₹ 10,000/month is charged as cost before profit.So what? — A bakery pays one electricity bill, but it splits that cost across cakes, bread and savouries by oven time. That splitting is “deriving cost”.
Fixed vs Variable Cost — Classification
Operating costs split into two groups: fixed (ongoing, not affected by sales volume) and variable (varying in exact proportion to output).
| Fixed Cost Items |
|---|
| Consultancy Charges |
| Travel |
| Salary |
| Wages |
| Rent |
| Telephone |
| Water |
| Office Lighting |
| Office Stationary |
| Employee Welfare |
| Advertising |
| Insurance Premium |
| Variable Cost Items |
|---|
| Raw Materials |
| Packing Material |
| Freight Inward and Outbound |
| Sales Commission |
| Royalty |
| Factory Power |
| Piece Rate Wages |
Fixed in nature — not fixed in amount
“Fixed” does not mean the amount never changes — rent can rise. It means the cost does not move with sales volume. Variable costs, by contrast, move in exact proportion to output: double the production, double the raw material.
| Item | Fixed when… | Variable when… |
|---|---|---|
| Telephone bill | office/shop | Call Center |
| Paper bill | office/shop | printing business (raw material) |
| Fodder to cows | — | dairy (more cows = more milk) |
| Water | office | soft drink factory |
| Stationary | office | coaching class (more students) |
Classify with context
Never classify an expense without knowing which business it refers to. A telephone bill is fixed for a shop but variable for a call center that pays per call; stationary is fixed for an office but variable for a coaching class that buys more sheets as students join.
Key Takeaways
Key Takeaways
- Expenditure is the outflow of money on the purchase day; expense is the value of the resource consumed to earn revenue.
- Expense is a subset of expenditure — a ₹ 5,00,000 machine is expenditure today, but only ₹ 50,000 of depreciation is expense each year.
- Cost is derived: ₹ 50,000 of factory rent allocated 50/30/20% gives ₹ 25,000 / ₹ 15,000 / ₹ 10,000 of space cost per product.
- Fixed costs are fixed in nature, not in amount — salary, rent, telephone, insurance stay constant with sales volume.
- Variable costs move in exact proportion to output — raw materials, packing, freight, sales commission, piece-rate wages.
- Classification depends on the business: a paper bill is fixed for an office but raw material (variable) for a printing press.
- So what? — Your tiffin service: ₹ 2,000 rent is fixed whether you deliver 10 or 40 boxes; ₹ 60 of ingredients per box is variable.