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Costs

 

FIXED COSTS

These donít vary with the level of production.  Fixed costs have to be paid whatever the level of output, even it nothing is being produced, e.g., rent.  The fixed cost curve is shown overleaf.

 

 

VARIABLE COSTS

These costs vary directly with the level of production, e.g., fuel, labour and raw materials.

 

 


SEMI-VARIABLE COSTS

Some costs are not so easy to classify.  They are fixed for certain levels of production, however if output rises too much costs will also rise.

 

TOTAL COSTS

When fixed and variable costs are added together (plus any semi-variable costs) we arrive at the fixed costs figure.

 

DIRECT COSTS

These are costs that can be directly attributed to the production of a particular good or service, e.g., raw materials and piece rate wages.

 

INDIRECT COSTS (OVERHEADS)

These canít be directly linked to a good or service.  They can be difficult to control and managers have to be aware of them, e.g., depreciation, management, administration and marketing.

  

 

 

E-mail Steve Margetts