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FIXED COSTS
These
don’t 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
can’t 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.
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