Business Costs Flashcards

All 8 cards in this deck

Give two examples of a fixed cost.

Any two of: rent; insurance; salaries (e.g. managers' pay).

Give two examples of a variable cost.

Any two of: raw materials; packaging; wages of production workers paid per item made; energy used to run machinery.

True or false? A business's fixed costs never change.

False. They don't change with output in the short term, but they rise when a business expands, e.g. when it rents a bigger site.

What are fixed costs?

Expenses a business must pay that do not change with output, e.g. rent.

What are variable costs?

Expenses that change directly with output, e.g. raw materials.

What is the formula for total costs?

Total costs = fixed costs + variable costs.

What is the formula for total variable costs?

Total variable costs = variable cost per unit × quantity produced.

Why must a business with high fixed costs sell a large number of products?

It needs enough sales to cover the fixed costs, which must be paid whatever the output; otherwise it makes a loss.