3.3 Costs & Revenues (DP IB Business Management)

Fixed costs are those that do not change as the level of output changes.

Variable costs are those that vary directly with the output.

True.

Total costs are the sum of fixed and variable costs.

Examples of fixed costs for a retail business include:

• Rent

• Utilities

• Salaries

• Insurance

• Bank loan repayments

Direct costs are related to the production of a particular product and vary directly with output.

Indirect costs are costs that cannot be allocated easily to the production of a particular product.

False.

Direct costs are often the same as variable costs.

Another term for indirect costs is overheads.

Examples of variable costs for a construction business include:

• Raw materials, such as bricks and cement

• Components, such as kitchen units or radiators

• Employee wages

False.

Administration expenses are an example of an indirect cost.