Fixed And Variable Costs

Costs
All businesses have costs. A cost is any spending on goods and services for the business.

Create a spider diagram to show as many costs as you can think of that a business might have. Use these 4 main headings:
Costs Production Sales/Marketing Premises Staff

Fixed and Variable Costs
Fixed Costs
Are costs which stay the same over the year. They do not change if the firm sells more goods or makes fewer items.
Variable Costs
Are costs that change as output changes. If a company sells or produces more goods these will increase.

Task
Write down next to each of the costs you have listed an F for a fixed cost or a V for a variable cost

Diagrams of Costs
When we know the fixed and variable costs of a product we can work out the total cost .
Total Costs
Are all of the costs a business has:
Total Costs = Fixed Costs
+ Variable Costs

Diagrams of Costs
The total cost lets us work out the average cost – this is how much it cost to produce one item.
Average Cost = Total Cost
Number of Units

Costs Chart
Output 0 100 200 300
Fixed Costs 2000 2000 2000 2000
Variable Costs 0 200 300 390
Total Costs 2000 2200 2300 2390

Costs Graph

Average Costs
Output 0 100 200 300
Fixed Costs 2000 2000 2000 2000
Variable Costs 0 200 300 390
Total Costs 2000 2200 2300 2390
To calculate average cost, we divide the total cost by the total output. E.G.: £2300 divided by 200 = average cost of £11.50

Task
Draw a graph to show the costs for the following company:
970 1000 400 885 1000 300 795 1000 200 700 1000 100 0 1000 0 Total Costs Variable Costs Fixed Costs Output

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Fixed And Variable Costs

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