Business Studies Collins Revision Guide. - StudyGuide.PK

BREAK EVEN (1)Types of costs●When a business makes a product or gives a service there is a widerange of inputs that go into it. The business has to pay for theseand they are known as costs.MilkTeaElectricitySugarLabourWaterCup and saucerTea pot●●●●Fixed costs (FC) are those costs that do not vary directly withoutput. In making the cup of tea the cost of the teapot will stay thesame whether we make one cup of tea or three cups. Even if wemake no tea today we will still have paid for the teapot.Typical fixed costs include:■ rent or costs of premises■ rates■ interests on loans■ equipment.Variable costs (VC) are those costs that vary directly with output. Inmaking the cup of tea, the cost of the tea will vary according to howmany cups we make. One cup of tea uses one tea bag; three cups usethree tea bags. If we make no tea we will not use any tea bags at all.Typical variable costs include:■ ingredients or parts■ packaging■ wages of production workers.36