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
These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email
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