Understanding Fixed and Variable Costs (10th)

Selling Price in the calculator.

• The amount at which a product is sold to customers.

• The cost price of a product before any markup.

• The total expenses incurred in producing a product.

• The price at which a product is bought from suppliers.

Profit Calculation

• Profit = Total Revenue + Total Cost

• Profit = Total Revenue - Total Cost

• Profit = Total Revenue / Total Cost

• Profit = Total Revenue * Total Cost

Fixed Cost (FC)

• Costs that do not change (rent, salary, etc.)

• Costs that vary with production levels

• Costs that are incurred only once

• Costs that can be easily altered

Break-Even Point (BEP)

• The point where Total Revenue > Total Cost and Profit > $0

• The point where Total Revenue = Total Cost and Profit = $0 (No profit, no loss)

• The point where Total Revenue < Total Cost and Profit < $0

• The point where Total Revenue = Total Cost and Profit > $0

Key Point about Fixed Costs

• You have to pay fixed costs even if you produce nothing.

• Fixed costs vary with the level of production.

• Fixed costs are only incurred when production is at maximum capacity.

• Fixed costs can be eliminated by reducing production.

Examples of Variable Costs

• Raw materials, packaging or shipping costs

• Fixed salaries for permanent employees

• Rent for office space

• Insurance premiums

Variable Cost per Unit (VC)

• Cost to produce one unit (raw material, packaging, etc.)

• Fixed cost associated with production

• Total cost divided by the number of units produced

• Cost incurred regardless of production volume

Understanding Fixed Costs

• Essential for determining the minimum production level to avoid losses.

• A variable cost that changes with production levels.

• Costs that can be eliminated without affecting production.

• Expenses that increase as production increases.

Profit calculation for selling 500 cakes

• $800

• $950

• $1,100

• $1,200

Definition of Fixed Cost (FC)

• Costs that vary with production levels.

• Costs that remain constant regardless of production or sales.

• Costs that are incurred only when production exceeds a certain level.

• Costs that are directly tied to the volume of goods sold.