Total Cost, fixed cost, variable cost
Costs = the expenses involved in making a product. Firms incur costs by trading.
Total Costs (TC): the amount of money spent by a firm on producing a given level of output.
Total costs are made up of fixed costs (FC) and variable costs (VC).
Fixed costs: expenses of production that do not change with output eg rent. Fixed costs are almost always indirect costs and are sometimes called expenses.
Variable costs: expenses of production that do change with output eg components and raw materials.
Total costs = Fixed Costs + Variable Costs or TC = FC + VC. This means FC = TC – VC and VC = TC ‐ FC
Example: calculate total costs if fixed costs are £10,000 and variable costs are £40,000. TC = FC + VC = £10,000 + £40,000 = £50,000
Calculate the total costs for the year
Variable Costs = 3,000,000 x $4 = $12,000,000
Fixed Costs = $200,000
Total Costs = Variable Costs + Fixed Costs