
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