1. Re-cap
Charlie wants to set up a chocolate factory. Organise the below costs in to start-up and operating (running) costs.
Sales brochures Electricity Bill
Making a website Deposit for leasing factory
Wages for staff Till
= 5mins

2. LO2) To calculate total costs using formulae
TOPIC: Topic 5: Operations Management
LESSON TITLE: Types of Business Costs
COMPETENCY FOCUS:
Technological Impact (C4): students will develop their understanding of how technology has made an impact in the production process of products for a business.
Key Skills (L5): you will be able to develop your numeracy skills to calculate financial transactions of a business and to interpret financial data.
Learning Objectives
By the end of the lesson, you should be able to…
LO1) To distinguish between fixed, variable, semi-variable, direct and indirect costs
LO2) To calculate total costs using formulae
LO3) To analyse the importance of managing costs for a business

3. Types of Business Costs:
Start-up costs Operating Costs
Fixed Costs Variable Costs
(Indirect) (Direct)
[These are the costs incurred in making a product]

4. Fixed Costs These are also called ‘indirect costs’
These are costs that a business faces once it is up and running (operating costs)
These costs don’t change even if you produce more products or less products
For example, council tax, rent & rates, heating, telephone bill

5. Variable Costs Costs that change with the number of products produced
For example raw materials, labour costs
Therefore if the business produces more products, their variable costs will increase.

6. Task 2
Tumbles Toy Factory has seen a slump in sales and production following the Christmas period.
List all of the variable costs that would reduce due to lack of sales/production.

7. Task 3
Fixed or Variable?

8. Total Costs
The total amount of money a business spends on running the business. Total costs = Fixed Costs (FC) + Variable Costs (VC)

9. Calculating Total Costs
If a bicycle business sells 500 bikes per week with a variable cost of £250 per unit (per bike!) and £1000 fixed costs, what would the total costs be?

10. Calculating Total Costs
Total costs = Fixed costs + Variable Costs Variable Costs = £200 x 500 = £ Therefore… Total Costs = £100,000 = £1000 TC = £101,000

11. Task 4
Sarah owns a small beauty salon in Tipton. She is trying to analyse her annual costs. She knows that she pays £18,000 in rent, wages/salaries of 2 Beauty Therapists add up to £35,000, utility bills add up to £12,000 and she spends £400 per week buying styling products.
Identify Sarah’s fixed costs
Identify Sarah’s variable costs
Calculate her total costs

12. Start-up or Operating Cost?
Move to the correct side of the classroom:
Gas bill
Staff Wages
Telephone Bill
Rent
Council Tax
Insurance
Fixed Cost
Variable Cost

13. Other types of Costs
Semi-variable Costs: costs that have both a fixed costs and a variable cost element. For example: if you pay a member of staff on a permanent basis no matter the level of output, this is a fixed cost, if you then ask that employee to work overtime, this is then a semi-variable cost. Marginal Costs: the extra cost of producing one or more unit of output.

14. Task 1
Complete Activity 31.1 on pg [30mins]