Costs
Business: Cambridge International GCSE (2027 Exams), topic 4.2.1
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 company changes its output.
- So whether a company 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 company grows.
Variable costs
- Variable costs are the costs that change directly with output (they change as a company changes output).
- Examples include the wages paid for factory labour, raw materials and transport costs.
Case study: Jasmine’s Juice Bar
- Jasmine is a sole trader who runs a small juice bar called 'Jazzy Juices' in her local town centre.
- Jasmine started the business after spotting a growing demand for healthy drinks in her area.
- Jasmine owns and manages the business by herself, making all the key decisions.
- Jasmine sells a variety of freshly made juices and smoothies from a small rented kiosk. Jasmine works full-time in the juice bar and occasionally hires a part-time assistant during busy weekends.
- Her income depends entirely on the profits the business makes.
Case study: fixed costs
- Rent for the kiosk – Jasmine pays a fixed monthly rent to use the space in the town centre.
- Insurance – Jasmine pays a set annual amount for business and public liability insurance.
- Equipment depreciation – She owns a commercial blender and juicing machines, which gradually lose value over time
Case study: variable costs
- Fruit and vegetable supplies – The cost changes depending on how much she needs and market prices.
- Packaging – Cups, lids, and straws are bought based on how many drinks she sells.
- Part-time staff wages – Wages vary depending on how many hours her assistant works.
Test yourself on Costs
Which of the following is not an example of a fixed cost?
Which of the following is true about costs?