t / AL AI Costs Cost information 1 + Sales “seme — manag yoo get ‘Explain the need for accurate cost data seta + Identify and explain the types of costs: fixed, variable, marginal; direct and Indirect ‘+ Explain the problems of trying to allocate costs in given situations ‘+ Explain the cost information for decision making purposes, e.g. average, marginal, total costs Uses of cost information Business Costs caithna Deal Costar the amounts thal business incurs inorder to make goods and/or ‘products provide services, y = Brean even point = (Revenve = toto cast Costs are important to business because they: a & 2+ Cok ig cnaiehd fe Tmmnenlied poy rtak” *fapainhow costscanbe used forprinedectons | ake in wo ‘Explain how costs can be used to monitor and improve business performance, cast seller and including using cost information to calculate profits credit sale. 4. Profit = Revenue — total if ta. - Break-even analysis «Determine the minimum level of production needed to breakeven or the profit made + Define, calculate and interpret the margin of safety Pee + Expl Breah-cven even. TEVERVE, and,imitations of break-even 9 toto costs praniohle = Profte costs et = Leas. Fixed costs to 80 3040 $3 GaI0 BF" 6 ys [oo © Seif Revenve < total Cost dy K att ee ES ‘Are the thing that drains away the profits made bya business lose scurtasan ade rerueromemabininnes | f ‘The need for accurate cost data '* -akey factor inthe ‘profit equation’ «of great importance to all departments, ‘+ allows comparisons to be made with past periods of time ‘Comparing cost data and calculating the cost of diferent options: + help managers to make decisions + past cost data can be used to set budgets for future Classifying costs Costs need to be classified forthe purpose of analysis such as break-even, costing, pricing and other decisions ‘Types of costs:fixed, variable; marginal average; directand indirect, 8 + iP Renenue > total cost Direct Costs~: these costs that can be clearly identified with each unit of ‘production and can be allocated to a cost centre. In manufacturing business, direct costs are labor and materials, while in service business, such as retailing, it's the cost ofthe goods being sold NB: Direct costs are similar but not the same as variable costs, not all direct costs, are variable costs. + For example, ifa firm decides to produce a special order for a supermarket, and ifthe variable costs are $10 per unit and it costs $20000 to change the yevust kes Scanned with CamScannerpackaging for an order of 20000 units (Le-$2per unt) to change the packaging, then the direct costs are $12 per unit. = Adirect costs similar toa varable cost in that it compares the cost withthe level of output. However a direct cost is any cost which s directly related to the output level of a particular product. Direct costs more appropriate for 3 firm that makes more then one type of product. = For example, if fiem is producing funiture andthe chai produced use a certain type of wood, but the tables use another type of wood, then bath types of wood would be direct costs because they are drecty related tothe level of output ofa particular product not to the level of output in general Indirect Costs ~ costs that cannat be identified with a unit of production or allocated accurately to a cost centre. These costs are often referred to as overheads. ‘An indirect costs any cost which cannot be linked with the output of any particular product. They ae related to the level of output of the firm but notin a direct ‘manner and not for any one product. For example, the cost of powering machinery will be related to the level of output but not to a particular product. Generally the terms indirect and direct are more likely to be used when the firm produces a range of products. In break-even analysis, the firm wil only producing a certain product type. This means that the terms fixed and variable are more likely tobe used ‘Other classifications inthe short un sPixed\Gosts— wots which do not change with output or do not vary wit the short term + These must be paid even when output is zero. = Typical ones are rent, salary, heating and lighting, and insurance. output in Examples include: ‘© Rent © Electricity ‘+ Maintenance © Advertising + Salaries - Office salaries Insurance ‘© Depreciation Fixed costs can be represented on a graph and this would appear as follows: core Figure 1- Fixed Costs NB: A common mistake that is made sto state that fied costs will always remain constant. This fs not the case, all we are saying Is that these cost are fixed with respect to short-term changes in the level of output only. ‘Watiable Costs ~ costs of variable factors that do change with output. ‘Any cost which varies directly withthe level of output would be classified as 2 vatiable cost. Varying directly means that the total variable cost wil be totally {dependent on the level of output. f output doubles, then the variable cost would double. IFhalved, the variable costs would halve. If output were zero, then no variable costs would be Incurred Common examples of variable costs areas follows: Example of variable costs Scanned with CamScannerP Direet labour Raw materials and components Packaging costs Royalties Variable costs can be represented on a graph and this would appear as follows: Figure 2 Variable costs “Semi variablecosts include both a fixed and a variable element. Inrealty, nearly all costs would nat easly be cassified into either fixed or variable ‘Most costs will fall somewhere between the two classifications. n this case, we can. classify these costs as semi-variable costs, For example, although the wages ofthe production staf may appear tobe variable ‘costs. In reality, they wil vary with the level of output but not ina direct manner. ‘The direct relationship is unlikely to hold over along period of time. Similarly, many costs will hve a fixed element but also a variable element (for example, most bls {for gas and electeicity will consist of a standing charge which Is fixed and a variable ‘element which depend on the usage). ‘Wheat would the graph ofa semi-variable cost curve appear ike? Because there link between the cost and the level of output, we would expect the semi-variable; cost curve to be upward sloping, However, there is no real “textbook appearance for this curve. It will normally slope upwards ina non-inear (ie. curved) manner. Examples are: = Raw material Wages + Energy for machinery ‘otal Costs all costs required in the production process “Total cost would be calculated as all the costs totalled together for any particular level of output. the output level were zero, then total costs would just consist of fixed costs. In neatly ll cases, total costs willbe the addition of fixed costs and total variable costs (where total variable costs the variable cost per unit multiplied by the level ‘of output). ‘oral variable costs = Variable cost per unit x output level. Total costs= fixed costs + variable costs Total costs can be represented on a graph and this would appear as follows: Figure 3 Total fixed and variable costs ‘TOTAL COSTS = Fixed Costs + Variable Costs Scanned with CamScannerRevenue —total value of sales made by a business ina given time period ‘TOTAL REVENUE = Price x Quantity Profit/Loss —how much money the frm has made once costs of production have been taken into account PROFIT/LOSS = Total Revenue ~ Total Cost tari cats tee ot ol producing one more nto This wba the extra variable costs needed. a ‘The term ‘marginal cost refers tothe cost of producing one extra unit of output ‘The cost of producing an adaitional unit of output willbe the variable costs and any other costs that are directly related tothe level of output, + Marginal costing is a costing methods that only includes the diect (or variable) costs unless the question specifies that there sto be an increase in the fixed costs - usually this is not the case "Marginal costing is very useful for managers when making the following decisions: + Accepting special orders (at alower than normal pric}. + Deciding whether to makea product orto buy the product in from an outside firm. + How to allocate raw mate the most profitable pattern. ‘+ Deciding whether or not to close a branch orto discontinue production of ‘one of a range of products 3s and other resources when they are scare However, marginal costs wil nt prove as useful when attempting to st a selling price ofa product. Consider the following example. ‘Example - marginal costing B itt has ust opened up small restaurant. The following has been estimated for the cost of producing the typical meal: Food and other ingredients £3.00 Waiting staff £0.50 Kitchen costs £0.50 How much should he charge for a meal? Try to work this out ‘Average costs ~ total cost/number of items produced Scanned with CamScannerProblems of trying to allocate costs in given situations Notaeots canbe csi eer theo warble’ THs typeof cost described as ‘semi-variable’. bia ‘+ classification might be hard or even not worthwhile; + e.g. change in situation lead to unexpected cost that can't be judged; e.g labor; accidents; Example: + Purchase of equipment —fixed Raw materials variable Promotion ~usually fixed Rent —usualy fixed Labour can be either (fixed or variable payments) ~semi-variable Energy can be either (heating or powering machines) ~ semi-variable Internet services -can be either fixed or variable —semi-variable ‘Some costs can be shared over a range of products For example, ifyou wanted to ‘aleulte the cost of running 2 Business Studies department there are costs that are shared with other departments such as heating and lighting as well s salaries of ‘exam officers, head teachers, caretakers. Total revenue Revenue is the money earned from selling output. It is based on both the level of ‘output and the selling price of this output. Is calculated as follows: Total revenue = selling price x output level Notice that in the above formula we assume that a buyer can be found forall units ‘produced. Thisis viewed as a limitation of some of the costing scenarios that you may ace. ‘The total revenues also based on the assumption that the selling price remains constant. If thisis the case then we llustrate total revenue graphically. This would ‘appear as follows: Figure 4 Total revenue curve Uses of cost information Cost information for decision making purposes, Use cost data ta help make simple cost-based decisions, e.g. to stop production or continue Ia company losing money because of high costs, then the business may decide to decrease the cost by buying in bulk, stopaing a certain process or cutting labour. ‘eg. average, marginal, total costs Possible costs Helping calculate profs Whether or nat to make @ particular product Whether to make or buy Monitoring and improving business performance ~by observing trends in costs, comparing outcomes with targets Setting budgets Deciding on resource use by comparing costs of competing resources ‘Making business decisions such as location, production method and investment appraisal Calculating break-even How costs can be used for pricing decisions As Seen in marketing there area variety of ways of setting prices, often related to market conditions. However, whatever the pricing strategy a price ‘should usually be set so that atleast the variable costs of production are Scanned with CamScannercovered. Inthe long term a business needs to cover fixed costs a5 well So that average costs are also important + Use afferent pricing strategies 1) Penetration: lowhi ’) Skimming: high-low ‘+ How costs can be used to monitor and improve business performance, Including using ost information to caleulate profits = Reduce the cost profit margin + Always keep qualty high Break Even Analysis Determining the minimum level of production needed to break even or the profit, made ‘Ifa firmis producing below the break-even point, Itisin danger. Breaking Even ~the level of output where total revenue is equal to total cost Break-even analysis ‘Most firms wil want to maximise their profits. Being profitable isnot always possible. New firms, small firms and firms facing an economic slowdown may find that they cannot generate profits at al. In this situation it may be armore realistic ‘objactive for firms to aim to simply break-even. Break-even implies thatthe fem does not make any profit, but it also does not ‘make any losses either. Al the costs incurred by the firm are exactly matched by their revenues earned over a period of time. Break-even occurs wher tal costs is equal to total revenue ‘The break-even point is measured by the level of output where total costs equals ‘total revenue but in can algo be measured in terms of sales value. Break-even is measured either by output level or by sales value n ‘Assumptions of break-even ‘The break-even models based on some simplifying assumptions, which does make the model less realistic, bt ean also make it easier for us to use and to manipulate {for changing circumstances. These assumptions are as follows: 1. Alloutputis sold. The words output and sales are used interchangeably - there are not stocks of goods remaining unsold. 2. The firm only makes one type of product. 3, Allcosts are classified as either fixed costs or variable costs. ‘4. The firm can sell all the output it wants at each selling price ‘Based on the simplifying assumptions outlined earlier -that there are only two types of costs fied and variable - then the break-even point will always be found where: ‘Total revenue = fixed costs + variable costs ‘As ong asthe firm generates a postive contribution on each extra unit of output thats sold then profits wil always be higher (or its losses willbe ower) iit sells an extra unit of output. Ifa firm had no fixed costs to worry about at all, then any units sold would lead to ‘the frm making a profit. However, nearly all firs will have fixed costs that will be paid regardless of the level of output. n this cas, for the firm to earn a profit, the contribution earned on the units of output actually sold must be higher than the ‘overall level of fixed costs. “The break-even point must therefore be atthe level of output where the contribution generated from these sales Is exactly equal tothe total level of fixed ‘costs. This gives rse tothe folowing formula Fixed costs Break even point = FP es tribution per uni (Greakeven points measured in units of output) 2 Scanned with CamScannerRemember that contribution per units selling price - variable cost per unit Example 1 ‘sole trader runs a sandwich shop. The average cost of each sandwich, in terms of ingredients, is £1. The average selling price ls £1.50. The weekly running costs of the shop are £500 -this covers rent, heating an lighting, and his own wages ~ these do not depend on the level of output. How many sandwiches need to be sold on an average week to breakeven? Have a {20 at working this out and then follow the link below ta see how youve got on. \We can also measure the break-even point in sales revenue. We sil use the formule to calculate the output level for break-even, but then we multiply the break-even output level by the selling price Break-even level in sales revenue = Break-even output xseling price In our previous example, the sales revenue at the break-even point would be: 1,000 sandwiches x £2.50 £1,500 Break-even charts The break-even model can also be expressed ina graphical format ona break-even chart. This will bring together the graphical representation ofboth costs and revenue curves that have been developed earlier ‘The standard break-even chart will appear as follows: Note the following: 4 [tis normal to plot the following three curves on tothe break-even chart: ‘© Totalrevenue © Total costs fo Fixed costs 2, The horizontal avis measures the range of output from zero, to tie maximum possible output (ths will depend on the question a to which the scale of the output) 13, The vertical axis measures both costs and revenues- it measures financial values. 4, Both the fixed cost curve and the total costs curve wil originate at the samme point on the vertical ans as each ather (this is because if no output is produced then fixed costs and total costs willbe the same - there will be no Variable costs at zero output). 5, The point of intersection ofthe total cost and the total revenue curve represent the break-even level of output. This can be found by drawing a fine vertically down from the intersection to the horizontal axis to measure the actual break-aven output level 6, Theale revenue atthe break-even level of output can be found by taking horizontal ine from the total cost/total revenue intersection tothe vertical 7. Any output levels tothe right of the break-even level of output wil mean thatthe firm has generated a profit. However, ary output levels to the left of the break-even will mean thatthe firm has generated a loss, Scanned with CamScannerPlotting the break-even chart ‘The chart is based on the simple relationships between cost, revenucs and output. ‘As output increases, there will be an Increase in costs and also in revenues. This can ‘be summarised as folows: Fixed costs will be represented by 2 horizontal line, This wil be drawn from the vertical axis at the level of fixed costs and wl be plotted across the chart. Total costs consist of bath fixed and variable costs, Therefore, as output increases, the total cost wil also increase. Total costs (Tc) = Variable costs (VC) + fixed costs (FC) TC= (VC per unit xoutput level) + FC Total costs (TC) = VC per unt x output level + fixed costs Example 2 firm produces pine cheirs, the variable element of which costs £15 to produce. ‘The fixed costs incurred per week amount to £8,009. What are the total costs forthe firm at the output levels of zero, 100, 500 and 200 bookcases? Have go at working them out and then follow the link below to see how you got on. ‘Aquick way of plotting the total costs curve is as fellows: \We know that at zero output the total costs and the fixed costs will be the same. This will be the fist point on the total cost curve. {As output increases, we know that total costs wil increase in linear (Le straight line) manner. we simply find that end point of the total cost curve, then we can 1s join up the end and the starting point to give us the ful total costs curve. The total costs at the end point wil simply be as follows: Maximum output multiplied by the variable unit cost plus the fixed costs. Of cours, if we make a mistake then the whole curve will be inaccurate It may be ‘wise to plot a third point on the curve justas @ backup. Choose any output level and calculate the total casts at this point and simply plot this on the chart. “Total revenue curves will always begin atthe origin (0, 0). This i because if no ‘output isso, then no revenue will be received. The revenue curve wil also rise in liner, straight-line, manner. Plotting the total revenue curve will involve calculating revenue at various levels of ‘output, Total revenue willbe calculated as follows: Total revenue (TA ling price of output x output level “The quick method here would be to calculate total revenue at the maximum output level by multiplying this output level by the selling price and then joining this point ‘up with the origin Example 3 [As inthe above example, the chairs produced are then sold fr £30, What isthe total revenue received by the firm atthe output levels of zero, 100, 500 and 100, chairs? Have a go at working this out and drawing the total revenue curve and then {ollow the lik below to see how you got on. ren point \fwe combine the data relating to the cost and the revenue situations of chars as ‘outline inthe previous examples, we would arrive at the following: Seling price = €30 6 Scanned with CamScannerVariable cost= £15, Fixed costs = £8000 ifwe assume thatthe maximum eel of ou imum eel of outa that canbe produced pe weeks 1000 cha then the data relating cots rd revenue ferent opt els canbe represented a folows TATE aS CoAT OTST TE to ‘may help to think of the output levels a the horizontal co-ordinates onthe chart {and the money values as the vertical co-ordinates. For example, the total revenue ‘curve will always start at (0, 0) Fixed cost and total cost eurve both begin at (0, +8000). Break-even chart in full = Om Figure 4 Breakeven chart Using a table as shown above may help you to eliminate any chance of errors being ‘made. However, in an examination situation, the construction of sucha table may take up valuable time, which you cannot afford to give up. Hint until you are confident in drawing break-even charts, use a fll table as shown above ” (When drawing a chart, it is sensible to first ofall eleulate the break-even point Using the formula, This way, we can have a rough dea of what the chart should look like before we draw the chart. Fixed costs Break even level of output = Zaps per oat Break-even level of output = £8000/(€30 -£15) = £8000 / £15 = 533.33 chars It always makes sense to round up the answer to the nearest whole. Number (unless output ean be broken up into fractions. In this case, the break-even level of output wll be S34 chairs. Using the break-even chart “The break-even chart can be used to measure profits and losses. Ths s achieved as follows: Figure 5 Measuring profit from break-even chart [At any output level, the proft or loss can be calculated by simply drawing up a vertical line from the output level ofthe horizontal ais (inthis case from 30 units). Sooner of later, ths line will pss through both the total cost and the total revenue curve. As Itintersects both ofthese curves, you should draw a horizontal ne (he. at right angles to the original vertical ine} towards the vertical axis (where we ‘measure the money). The two lines (one from the total cost intersection and one from the total revenue intersection} wil eventually hit the vertical axis. Now, all s Scanned with CamScannerYou have to do is measure the vertical gap between these lines in money terms (be Careful of the scale you are using to measure money). This gaa willbe the profit oF loss. On the diagram above, the profit willbe the distance ab, Example 2 \ith the same example ofsllng chairs, we can estimate the profit levels at diferent levels of output. ‘Whe number of chairs sold was /UU then the profits could be calculated as follows: Figure 6 Measuring profit rom break-even chart ‘On the other hand, if only 300 chairs were sold then the losses would be shown a5 follows “a asso tied Figure 7 Measuring loss from break-even chart ‘Margin of safety » “the margin of safety ~the difference in terms of units of production, between the current production level and the break-even level or, ‘Margin of safety- the emount by which the sales level exceeds the break-even level of output. ™ftis too low the business may struggle to become profitable. Ifa firm is generating a profit, then its output evel will be higher than the break ‘ever output level. A firm may wish o know how far output can fall safely, before the firm begins to experience losses. This idea fs summarised in the concept of the margin of eafaty. ‘The margin of safety measure how fer output can fall before the firm begins to make a loss. It is measured by the number of units of output between the current level of production and the break-even level of production. t can also be expressed, 2 percentage ofthe current output level. ‘Margin of safety (in units) = actual output - break-even output Example 3 Continuing withthe maker of chairs - ifthe actual output level were 650 chairs, then the margin of safety would be: Margin of safety (in units) 50 ch 534 chars Margin of safety (in units) = 116 chairs {nother words, output and sales can safely fall by 116 chats before the firm stops ‘making profits Fit falls by 117 chairs, then the firm would begin to make losses ‘Expressed as percentage this would be: (216 / by 650) x 100 and sales can fall by 17.8% before the firm stops making profit. 7.8% Le. output ‘This s shown below: Scanned with CamScannerFigure 8 Measuring margin of safety ‘Changes in costs and selling prices tis possible to show the effects of price changes, changes in both the fixed costs of the firm and aso the unit costs ofthe firm on the break-even char ‘The break-even level of output will always change if any ofthe fllowing three Items change: + Feed costs + Variable cost per uit + Selling price ‘Any changes in one or more of these will also change the curves as shown on the break-even chart. If any ofthe initial conditions changes, then it is possible to re~ plot a new curve on top ofthe od chart, to all comparisons over different scenarios. For example, a firm may have an option of investing in new machinery, ‘hich would increase the fixed costs, but would also lower the variable cost per nit. The overall effect on profits can be seen by drawing a break-even chart. a ‘The changes can be seen as follows: Change in selling price Figure 9 Increase in selling price - change in break-even Here, any change in the sling price of each unit wl simpy ‘swing’ the total revenue curve either upwards or downwards. tthe sling price is increased, then ‘the curve wil pivot eround the origin in an upwards manner ths will lead tothe firm breaking even ata lower output level than before. The opposites also true. Change in fixed costs Sea ZZ Figure 10 Increase in fixed costs - change in break-even Here, a change in fixed costs wil either shift the fixed cost curve up if t increases) ‘or down (fit decreases), This also has the direct effect on the total costs of the firm. if fixed costs increase, then the total costs curve will move upwards ina parallel manner, Similarly a fall in fixed costs wil shift the total costs curve downwards in a parallel manner. Scanned with CamScanner‘Change in variable cost Figure 11 Increase in variable costs - change In break-even Here, @ change in the variable cost per unt ill swing the total costs curve up (if the unit cost increases) or down (ifthe unit cost falls). The total cost line wil stil pivot around the total cost/fxed cost intersection (as long as fied costs remain constant). 2 Abreak-even chart Cost/| Revenue Break-even Quantity output Where: ‘TR stands for total revenue ‘Testands for total costs FC stands for fixed costs ‘TR = Saleex cost for each unit TC variable costs + fixed costs ied costs Scanned with CamScanner‘mathematically: BREAKEVEN POINT OF OUTPUT = Fixed cost Contribution contribution Contribution - how much per unit a company’s variable cost can contribute to paying the fixed costs. Once the fixed costs are covered, it can then contribute to profit. Lnked closely with marginal costs and marginal costing isthe concept of contribution. Contribution is defined asthe difference between the selling price of fone unit of output and the variable cost of producing this extra unit of output. Contribution per unit = selling price - variable cost per unit, ‘otal contribution would be the seme asthe contribution per unit but with each ‘component would le multiplied bythe level of output. The formula for this is 35, follow: ‘Total contribution = total revenue - total variable cost Contribution can also be thought of a the profit (ignoring fixed costs). Although it cannot offically be termed profit unt all costs have been deducted. Contribution really refers tothe amount each extra unit sold will contribute towards paying the fixed costs ofthe firm Limitations of break even for decision-making ‘The simple break-even model helps managers analyse the effects of changes in different variables. A manager can easly identity the impact on the break-even level of output and the change in profit or los a the exsting output. However, simple break-even analysis also makes simplifying assumptions: «+ Inealty the variable cost per units likely to change with changes in output 'As a firm expands, for example, it may be able to buy materials in bulk and benefit from purchasing economies of scale. Conversely, as output rises 2 firm may have to pay higher overtime wage rates to persuade workers 10 work longer hours. In either case, the variable costs per unit are unlikely to stay constant, 1+ Once. certain evel of output is reached, a firm will have to spend more ‘money on expansion. More machinery will have to be purchased and larger premises may be required (ether for purchase or for rent). This means that the fixed costs are unlikely to be constant with respect to output -though this may only apply to large changes in output. Tis can be built into the ‘break-even model bt it makes it more compacted, and the simple formula cannot be used, + Firms willincur other types of cost, which are partly bt not directly related to the level of output. These are known as semivvariable expenses. For ‘example, ifa firm purchases more machinery, then maintenance costs rise but possibly notin the same proportion asthe increase in the capacity. + Break:even analysis assumes that if output is produced it will automatically sel. nealty, sales may be higher than output (ifthe firm is using up stock) or less than output ifthe firm is building up stocks). + Ifa firm wishes to boos its profits then according to the break-even analysis, either the firm must increase its selling price or alm to sell more output However, this assumes that price can be changed independently of competition. If price is increased, it is likely that sales will fall -thus leading to lower, rather than higher, revenue, 26 Scanned with CamScannerExam tips - costing and break-even + You must be able to distinguish between the different categories of cost and hhow they change with respect to changes inthe level of output. A good {definition ofa type of cost would give both an example and would explore the relationship between the size ofthe cost and the level of output. + Tocalculate the break-even point the three items of information that are needed are the seling price, the variable cost per unt and the lave of fixed ‘costs. The break-even level in revenue and in output can ahways be calculated if we have these three pieces of information, ‘+ Although you wil need to be able to draw a break-even chart from start to finish, its highly unlikely that you would have to construct a full chart in the ‘examination because there is not enough time. ‘+ The uses and limitations of break-even will need to be considered as wel. In this situation, remember to use the information that you are given -break- even will be more useful to certain types of firms, in certain times, than in others - ou must use this when writing on this topic. Uses and limitations of break-even analysis Uses + determine a target profit level > establish the level of output required ‘easy to construct and interpret provide useful guidelines which project to invest in making comparisons when constructing different options produce a precise result assist managers pricing decisions, purchasing new equipment, choosing between locations performing ‘what if analysis UMITATIONS a assumptions may not be realistic straight lines is untealistic~ costs etc, may not be linear hot all costs can be conveniently classified - Iis not easy to separate costs ito fixed and variable no allowance made for inventory levels on the break-even chart ‘assuming all units produced are sold is impossible: It assumes that all output fs sold -it does not allow for inventories and the costs of holding these Fixed costs are impossible to remain unchanged as output level changes costs dificult to Wdentify for new projects Scanned with CamScannerJauueogued YM pauuess AyIUWDaIa ‘6’a $4S09 ajqeisen pue paxy ©3u! paylssej> Auauauos q UED $}S09 |/2 10N “Aypedes wnwixew 0} dn sjana] jndyno quasayip 3e pa8ueysun uewas $4809 paxly Jey} Ajay!JUN Si 3 vaseo 342 8q sAemye 03 Ajaytjun SI SIYL “Pjos ase paonposd syjun |je }e4y) pawnsse S]4 “eyo uand-yeaiq 42 UO sjana] AloqUanut Joy SpeW a2uemoyje ou si aay, “OAS!eadUN s} sauy IY|exs Aq paquasaiday aie sanuanas Pue s}soo yey} u duinssy sagequenpesiq “yNsad Uanayeaig as|pa1g eB saonpoid uonenba ay, e “suoisizap queyodu Supjey uaym sdaZeuew ysisse 0} pasn aq ued sishjeue Uara-yeaig « “saueysuinouio pasueys moys 0} sueys mau Buljonsysu0 Aq suoiydo qUaJayyp UZaMjaq apew aques suosedwo> e "yndyno jo saqey qualayip je S]®A9| Ssoj/yyoud pue sulew Ajayes ‘squiod UdAa-yed1q Uo yuaWaZeUeU 0} saul jeping Injasn sapiaoad siskjeuy “yesdsaqu! pue jonsysuod 0) Asea Ajannjejas aue sey sagejuenpy