FIXED COSTS AND VARIABLE COSTS

FIXED COSTS AND VARIABLE COSTS

1. Fixed costs Stay the same no matter how many products the business makes or sells.

   • EXAMPLE: Wendy has to pay £30 for her pitch no matter how many hot dogs she sells.

2. Variable costs CHANGE depending on the number of products made or sold.

   • EXAMPLE: The more hot dogs Wendy sells, the more rolls and sausages she needs.
   • The ingredients used to make Wendy's hot dogs are a variable cost.

3. The RUNNING COSTS of a business can be divided into FIXED COSTS and VARIABLE COSTS. Businesses also have DIRECT and INDIRECTS costs. Fixed costs are often indirect whereas variable costs would be direct.

4. Direct and Indirect costs : A DIRECT COST is directly related to output. INDIRECT COST is independent of output.

   • DIRECT COSTS: for example the cost of wood in a furniture factory.
   • INDIRECT COSTS: for example the cost of all staff uniforms.