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# Fixed And Variable Costs

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### Fixed And Variable Costs

1. 1. Costs <ul><li>All businesses have costs. A cost is any spending on goods and services for the business. </li></ul>
2. 2. <ul><li>Create a spider diagram to show as many costs as you can think of that a business might have. Use these 4 main headings: </li></ul>Costs Production Sales/Marketing Premises Staff
3. 3. Fixed and Variable Costs <ul><li>Fixed Costs </li></ul><ul><li>Are costs which stay the same over the year. They do not change if the firm sells more goods or makes fewer items. </li></ul><ul><li>Variable Costs </li></ul><ul><li>Are costs that change as output changes. If a company sells or produces more goods these will increase. </li></ul>
4. 4. Task <ul><li>Write down next to each of the costs you have listed an F for a fixed cost or a V for a variable cost </li></ul>
5. 5. Diagrams of Costs <ul><li>When we know the fixed and variable costs of a product we can work out the total cost . </li></ul><ul><li>Total Costs </li></ul><ul><li>Are all of the costs a business has: </li></ul><ul><li>Total Costs = Fixed Costs </li></ul><ul><li>+ Variable Costs </li></ul>
6. 6. Diagrams of Costs <ul><li>The total cost lets us work out the average cost – this is how much it cost to produce one item. </li></ul><ul><li>Average Cost = Total Cost </li></ul><ul><li>Number of Units </li></ul>
7. 7. Costs Chart <ul><li>Output 0 100 200 300 </li></ul><ul><li>Fixed Costs 2000 2000 2000 2000 </li></ul><ul><li>Variable Costs 0 200 300 390 </li></ul><ul><li>Total Costs 2000 2200 2300 2390 </li></ul>
8. 8. Costs Graph
9. 9. Average Costs <ul><li>Output 0 100 200 300 </li></ul><ul><li>Fixed Costs 2000 2000 2000 2000 </li></ul><ul><li>Variable Costs 0 200 300 390 </li></ul><ul><li>Total Costs 2000 2200 2300 2390 </li></ul>To calculate average cost, we divide the total cost by the total output. E.G.: £2300 divided by 200 = average cost of £11.50
10. 10. Task <ul><li>Draw a graph to show the costs for the following company: </li></ul>970 1000 400 885 1000 300 795 1000 200 700 1000 100 0 1000 0 Total Costs Variable Costs Fixed Costs Output