costs

The Relationships Between Different Types of Costs

• Fixed costs are costs that do not change as the level of output changes

  • These have to be paid whether output is zero or 5000 

    • e.g. building rent, management salaries, insurance, bank loan repayments etc

• Variable costs are costs that vary directly with output

  • These increase as output increases and vice versa

    • E.g. raw material costs, wages of workers directly involved in production

• Marginal cost is the cost of producing an additional unit of output

Cost calculations

Based on the above definitions, we can calculate several different types of costs

1. 

2. 

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