3.1 Cost of producing the product/ service

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What is a cost in business?

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A cost is anything that a business has to pay for. All businesses have costs that need to be paid regularly.

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What are examples of business costs?

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Examples include rent, bills, raw materials, staffing costs, petrol, and postage.

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What are the three main categories of costs?

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Fixed costs, variable costs, and total costs.

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What are fixed costs?

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Fixed costs are costs that do not change, no matter the level of output. They are usually fixed for at least a year.

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Examples of fixed costs

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Rent, insurance, salaries of staff.

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What are variable costs?

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Variable costs change depending on the output of a business. They depend on how much a business produces or sells.

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Examples of variable costs

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Petrol, postage, raw materials, wages (staff paid per hour).

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What are total costs?

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Total costs are the sum of fixed and variable costs for a business.

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How to calculate total costs?

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Total costs = Fixed costs + Variable costs.

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Example calculation of total costs

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If fixed costs are £18,500 and variable costs are £9,250, total costs would be £27,750.