Costs
Business: BTEC Level 3 National Extended Diploma, topic 3.2.2
Costs
Costs are all of the expenses that a business incurs (pays). This involves everything from wages paid to employees to the electricity bills at the business’ premises. The total costs are calculated as the sum of the fixed costs and the variable costs.
Fixed costs
- Fixed costs don't vary as the business changes its output.
- So whether a business produces 10,000 units of a product or 2 units of a product, its fixed costs will be the same.
- Snapchat registering as a business would cost the same regardless of how many adverts they sold or how many users they had.
- Examples include office rent, insurance, and fixed employee salaries.
- Note that fixed costs can increase as the business grows.
Variable costs
- Variable costs are the costs that change directly with output (they change as a business changes output).
- Examples include the wages paid for factory labour, raw materials and transport costs.
Test yourself on Costs
Which of the following is NOT an example of a fixed cost?
Which of the following is true about costs?