4. Fixed Cost:
A cost that doesn’t change with output.
Variable Cost:
A cost that does change with output.
Types of Cost
5. Does it change with output?
Does this cost change
depending on how many
customer purchase from the
shop?
Eg: Do we pay the same
amount if 0 customers use
the shop or 10,000
customers use the shop?
No, it doesn’t change with output so would be a fixed cost.
Example
Rent costs £12,000 per year
6. Fixed Costs Variable Costs
Your list
Go back to your list of costs and try and categorise
them into Fixed and Variable Costs.
7. Fixed Costs Variable Costs
Rent
Salary
Fixtures and
Fittings
Stock
Wages
Utility Bills
Your list
Go back to your list of costs and try and categorise
them into Fixed and Variable Costs.
8. Mr & Mrs Cartwright have just set up a new Market Stall in their local village. Each
month Mr and Mrs Cartwright expect to have a revenue of £10,000. Mr and Mrs
Cartwright Market Stall cost £3000 to fit and set up, they have other costs to
consider. These are Stock £200 per month, Wages £300 per a month, Rent at £1000
per month, Mobile Phone at £40 per month and utility bills at £250 per a month
Can you identify which costs are fixed or variable ?
Can you calculate the total costs per year ?
How much revenue do Mr and Mrs Cartwright look to gain each year ?
With these figures what recommendations would we make ?
With these figures will they make a profit ? Justify your answer.
Question
10. Direct costs
These are costs that are DIRECTLY linked to the production of a
product or service.
Eg:The wages of workers who work on the factory floor producing
a car
11. Indirect costs
These are costs that affect the company as a whole.
Eg:The cost of marketing for the car company
