Total cost, fixed cost and variable cost

Examples to total costs equations

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

Fixed costs

Expenses of production that do not change with output e.g. rent. Fixed costs are almost always indirect costs and are sometimes called overheads.

Total Costs

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).

Variable costs

Expenses of production that do change with output e.g. components and raw materials. Variable costs are almost always direct costs.

Total costs = Fixed Costs + Variable Costs

TC = FC + VC. This means FC = TC - VC and VC = TC ‐ FC

Costs

The expenses involved in making a product. Firms incur costs by trading.