Interview
Costs, Scale of Production and Break Even Analysis
- Course
- Institution
- Book
The notes covers Unit 4 chapter 18 of the Cambridge IGCSE and O level Business Studies
[Show more]
Connected book
Book Title:
Author(s):
- Edition:
- ISBN:
- Edition:
More summaries for
-
Location of Businesses
-
Operations Management
-
Operations Management
Seller
Follow
dominicokiogaotieno
Content preview
Classification of Costs Fixed costs
Variable costs
Total costs
Average costs
Fixed costs and variable cost
Fixed Costs
Costs that do not change with output produced or sold in the short run.
They are incurred even when the output is zero or when the firm is producing its
maximum output (capacity) and will remain the same in the short run
In the long-run they may change. Also known as overhead costs.
E.g.: rent, even if production has not started, the firm still has to pay the rent and
salary of managers.
Variable Costs
Costs that directly change with the output produced or sold.
If output increase by 50% then the variable costs will also increase by 50%
E.g.: raw material costs and wage rates that are only paid according to the output
produced.
Total cost
All the variable and fixed costs of producing the total output.
CAMBRIDGE IGCSE BUSINESS STUDIES NOTES otienodomi@gmail.com Page 1
, TOTAL COST = TOTAL FIXED COSTS + TOTAL VARIABLE COSTS
TOTAL COST = AVERAGE COST ×OUTPUT
E.g. if the fixed costs of producing 2000 units of output is $3000 and the total variable
costs of producing 2000 units is $5000, then the total costs of producing 2000 units is:
$2000+$5000=$8000
Average costs is the cost of producing a single unit of output
AVERAGE COST (unit cost) = TOTAL COST/ TOTAL OUTPUT
Using cost data to make simple cost-based decisions
Uses of cost data
Setting prices: if the average cost of one unit is $3, then the price would be set at $4
to make a profit of $1 on each unit.
Deciding on the best location: locations with the cheaper costs will be chosen
Break-even analysis
Decisions about whether to continue or stop producing a product.
CAMBRIDGE IGCSE BUSINESS STUDIES NOTES otienodomi@gmail.com Page 2
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through EFT, credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying this summary from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller dominicokiogaotieno. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy this summary for R186,13. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
79223 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy summaries for 14 years now