Business Costs

Fixed Costs Do not change with a change in output in the short term. Examples - rent, wages of admin staff, advertising campaigns etc. Note, they can change in the long term ie rent may be increased, but this is not directly due to changes in output.

Variable Costs Costs that change in direct proportion to changes in output. Examples include costs of raw materials and components & commissions earned by sales staff. If no products are made, variable costs will be zero.

TC=TVC + TFC

Semi-variable costs Contain an element of fixed and variable. Examples include wages to sales staff that are combine a basic sum plus commission.

Direct & Indirect Costs This classification of costs is used in financial accounts. Direct costs - costs linked directly to a particular product or process. Usually include variable costs like materials, but can include fixed costs like direct labour.

Indirect costs Also called expenses or overheads. Relate to the whole business ie not directly linked to level of production. Examples include rent. Generally include fixed costs (but can include variable eg electricity costs are semi-variable since machines use more energy if they operate longer).

Average costs AFC = TFC/quantity produced. AVC = TVC/quantity produced. Total average cost = TC/quantity produced.