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To understand the different types of costs that exist and how you use them in calculations. The costs that stay the same no matter what your output is. Examples include things such as rent, insurance, advertising and interest payments. You have to pay these even if your factory is closed and making nothing. Sometimes called overheads. These go up and down depending on how many of your product you are making. There is a direct link to output. Examples include raw materials, packaging, fuel and labour. If a business makes nothing, the variable costs will be zero. This is your fixed costs and your variable costs added together. TOTAL COSTS = FIXED COSTS+VARIABLE COSTS Cost (£) Trainers wages 400 per course Other variable costs 100 per course Premises rent 10,000 pa Lorry hire costs 20,000 pa Other fixed costs 10,000 pa The business trained 200 staff. Fixed costs = 40,000 (10,000+20,000+10,000) Variable costs = 100,000 (500 x 200) Total costs = FC + VC = 40,000 + 100,000 = £140,000 BatCraft make cricket bats. They employ 6 workers to make the bats. $ Rent 50,000 pa Business rates 5,000 pa Other fixed costs 25,000 pa Wood 30 per bat Other raw materials 10 per bat Labour 50 per bat Other variable costs 10 per bat BatCraft produce 4800 bats, what is the total cost of production? Calculated by taking the total cost and dividing by how many products are made. Average cost = Total Cost Quantity produced Eg, £140,000 = £700 per course 200 This is all of the money coming in from sales. Total revenue = Price x Quantity Eg, 900 courses at a cost of £200 each 900 x 200 = £180,000 This is the money that is left after paying all of the costs. Profit = Total revenue – Total costs Eg, £180,000 - 140,000 = £40,000 Glenn bought a family cruiser in 2007 with a loan to offer daily fishing trips. He charges $500 per day for the trip that takes up to 6 people. Costs January $ February $ Tackle hire 560 440 Insurance 50 50 Interest payment 3,000 3,000 Picnic hampers 2,800 2,200 Fuel 1,400 1,100 Advertising 100 100 Other fixed costs 300 300 Number of trips 28 22 Calculate Glenn’s total costs in January and February Calculate the revenue make in January and February Calculate the profit in January and February Calculate the average cost of a trip in January and February What does 'total cost' mean? The total income earned by a firm The total expenses of a firm The total amount of profit earned by a firm What does the amount of revenue a business earns each month depend on? Selling price Quantity sold Both selling price and quantity sold What is revenue sometimes called? Turnover Overheads Price An increase in output does NOT mean an increase in: variable costs. overheads. direct costs. A firm sells 10 units at £5 each. Its total costs are £30. How much profit is made? A £50 profit is made A £20 profit is made A £20 loss is made How do you calculate profit? Subtracting total costs from total revenue Subtracting total revenue from total costs Multiplying the quantity sold by price How do you calculate total revenue? Quantity sold x average price Quantity sold x average cost Quantity sold x average profit When is a business making a loss? When revenues are higher than costs When revenues equal costs When revenues are less than costs When is a business making a profit? When revenues are higher than costs When revenues equal costs When revenues are less than costs If a company reduces a product's price, what does this mean for their revenue? There will be an increase in revenue There could be an increase or decrease in revenue There will be an decrease in revenue