Financials & Advisers

Examples of Fixed and Variable Costs
All operating costs in a business are made up of 2 categories:

  1. Fixed Costs:

    These costs are incurred regardless of the level of activity in the business and will include such things as:

    • Salaries
    • Depreciation
    • Office costs.
    • Power
    • Rent
    • Telephone
    • Vehicle expenses
    • Insurance

  2. Variable Costs

    These vary directly with the sales or business activity and will include:

    • Raw materials
    • General purchases.
    • Purchase of stock.
    • Factory power.
    • Direct vehicle costs.
    • Factory wages
    • Sales commission, etc.

Elements When Costing Your Products
It is important that your business costings are accurate because they affect your pricing. If your costings are incorrectly calculated you will not be able to assess which products give you the most profit.

Some basic elements of cost that involve the business when costing its products are:

  • Direct material cost.
  • Direct labour cost.
  • Direct factory expenses.
  • Overheads of the factory.
  • General costs of production.
  • Other overheads.

Pricing - What Is A Price?
A price is taken to be the amount of money that something is bought or sold for. Any product or service will have a price and the seller may have a price that is different from what the buyer thinks it is worth. A product will have a sales value on it which is generally the price or the cost which is taken to produce that product and includes a profit margin for the producer.