Fixed costs, variable costs and making the profit

Dear Year 10

I hope that you enjoyed the lesson today.  This blog page should help you get on with the start of the new unit even better.

The basic fundamentals of running a business and making a profit are underpinned on understanding the costs involved.

There is a saying 

 "if the numbers don't add up on the spreadsheet they wont add up in real life"

Which means if you have not considered the costs in theory before you start the business then you wont be able to make a profit from the activity that you think is a good business idea in practice.

1. Click here to see the BBC Bite Size web page

2. Then make notes in your book on the following key terms

Costs

Running costs also know as operating costs or overheads

Start up costs

Fixed costs - also known as indirect costs

Variable costs - also known as direct costs

Total costs

Profit

Calculating total costs then becomes obvious when you understand the different costs a business has to deal with.

Total costs are all the costs added together.

The equation is: Total costs = Variable costs + Fixed costs

Remember variable costs are the cost of making one item so if you make 100 items this cost is multiplied by 100.

A fixed cost, however, does not change in the short term so the rent of a factory at £500 per week will not change if the business makes 100 pizzas or 1000 pizzas


Anyway Homework 2 Week 2  can be found if you click here


Good luck and enjoy

Mr T