gcse economics - business finance - types of costs

OUTPUT

The number of goods produced. E.g. if one car is produced it is one unit of output, if 100 cars are produced it is 100 units of output.

FIXED COSTS

Costs of production that do not vary with output. They stay the same regardless of how many goods are produced.

Examples:
- Rent
- Managers salaries
- Interest payments on loans

VARIABLE COSTS

Costs of production that vary directly with output. If more goods are produced then the costs are likely to go up.

Examples:
- Raw materials
- Power used in production
- Wages linked to production

TOTAL COSTS

The total cost of producing all output. It is calculated by
FIXED COSTS + VARIABLE COSTS

Example:
A car manufacturer has the following costs. It makes 10 cars a week

- Rent £1000 per week
- Salaries £1,000 per week
- Interest £500 per week
- Materials £100 per car
- Wages £50 per car
- Power £100 per car

Fixed costs are 1000 + 1000 + 500 = £2,500

Variable costs are (100 * 10) + ( 50 * 10) + (100 *10 ) = £2,500

Total costs are £2,500 + £2,500 = £5,000