1. OTHER TYPES OF COSTS Part 2

2. Starter What is a running cost? What is a Start-up cost? Give an example that could be both and explain why!

3. Lesson Objective To be able to define and identify direct and indirect costs. To be able to define and identify fixed, variable and total costs.

4. Huh? As we know, costs can be divided into start-up and running costs, but they can also be classified in other ways:  Direct and indirect costs  Fixed, variable and total costs

5. Direct Costs If you are making a product, the materials and wages of the person making it will be called “direct costs” because they are directly involved in making the product. Direct Costs = the costs directly involved in making a product

6. Activity

7. Indirect Costs As well as paying for direct costs, the business will have many other bills to pay…  E.g. costs of buying or renting property  Electricity  Advertising  Wages of people who are not actually making the product (cleaners, office staff…) etc. Indirect costs = costs other than those making the product

8. Recap 1 1. What is a direct cost? 2. What is an indirect cost? 3. Give an example of each.

9. Fixed Costs Fixed Costs = costs that remain the same no matter how many items you make or sell  E.g. rent

10. Variable Costs You only pay these if you make something e.g. materials to make wooden boxes.

11. Activity 2 Explain using examples, the difference between fixed costs and variable costs.

12. Activity 3

13. Total Costs This refers to the total costs of the business – which includes the fixed and variable costs. The formula is: Total costs = Fixed Costs + Variable costs If a business is making no products, the total costs will be the same as the fixed costs, as these have to be paid no matter what! Remember this for your exam!

14. Recap What are fixed costs? What are variable costs? What is the formula for total costs?

15. Activity 4 Products madeFixed costs (£)Variable costs (£) Total Costs (£) 010000 1010005001500 201000 2000 30100015002500 40 50 100

16. Activity 4 - answers Products madeFixed costs (£)Variable costs (£) Total Costs (£) 010000 1010005001500 201000 2000 30100015002500 40100020003000 50100025003500 100100050006000

17. Activity 5 Products madeFixed costs (£)Variable costs (£) Total Costs (£) 0 10 20 30 40

18. Activity 5 - answers Products madeFixed costs (£)Variable costs (£) Total Costs (£) 020000 10200010003000 202000 4000 30200030005000 40200040006000

19. Recap 2 A quick test…

20. Have we met our Lesson Objective? To be able to define and identify direct and indirect costs. To be able to define and identify fixed, variable and total costs.

21. Recap 1. What is a direct cost? 2. What is an indirect cost? 3. Give an example of each. 4. What is a fixed cost? 5. What is an Variable cost? 6. Give an example of each. 7. Total cost formula?

22. Activity 5 Products madeFixed costs (£)Variable costs (£) Total Costs (£) 0 10 20 30 40 Fixed costs - £1500 Variable costs - £25.50 per unit

23. Activity 5 Products madeFixed costs (£)Variable costs (£) Total Costs (£) 015000£1500 101500£255£1755 201500£510£2010 301500£765£2265 401500£1020£2520 Fixed costs - £1500 Variable costs - £25.50 per unit

24. Activity 5 - answers Products madeFixed costs (£)Variable costs (£) Total Costs (£) 020000 10200010003000 202000 4000 30200030005000 40200040006000

25. More practise...