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Summary business igsce Operations Management: Costs and break even
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Business igcse page 600 to 631Section 4 Part 19 Costs, scale of production and break-
even analysis
Business costs
All business activity involves costs. You need to think about
costs because
• The costs of operating the factory can be compared with
the revenue from the sale of the to calculate whether or
not the business will make a profit or loss. This calculation
is one of the most important made in any business.
• The costs of two different locations can be compared. This
would help the owner make the best decision.
• To help decide what price should be charged
Fixed and variable costs
The main types of costs are fixed costs and variable costs.
Fixed costs include salaries and rent, these costs need to be
paid no matter what.
Examples of variable costs include material costs. The more
units that are produced, the higher these variable costs will be.
Total cost and average cost
The total costs of a business, during a specific period of time,
are all fixed costs added to all variable costs of production. Can
be compared with the sales revenue for that period to calculate
the profit or loss made.
An average cost per unit can be calculated from the total cost.
Average cost is the total cost of production divided by total
output.
Total cost = average cost per unit x output
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