Economics 1,2,4

 Fixed costs:
Fixed costs are costs that are independent of the amount of business activity.

o fixed costs can change indeed. If the demand for a product rises, it may be
necessary to purchase more buildings and machinery
o Reducing fixed costs, on the other hand, is usually much more difficult.
o fixed costs that can be reduced relatively quickly, such as advertising costs.

 Variable costs:
Variable costs are costs that depend on the amount of activity within the
business. When the amount of business activity increases, so will the variable
costs.

o  When the business activity level increases, so will the variable costs
o Costs of which the increase is equal to the increase in production are called
linear (or proportionate) variable costs. 
o progressively variable costs (also referred to as variable costs with
diseconomies of scale)(hiring of temporary workers)(increase in cost higher
than the increase of the production)( But the increase in the cost is lower
than the linear cost)
o If the increase in costs is lower than the increase in production, we call
these regressively variable costs
o the change in total costs resulting from changes in the production volume,
is only related to variable costs.

 variable costs per unit = the total costs change /changes in the production
volume

total unit costs (UC) = total fixed costs (F) + total variable costs (F) 

UC = F + V

The total variable costs (V) can be calculated by multiplying the variable costs per
product (v) by the number of products (q). 
UC = F + v × q
Direct costs can be directly traced to a product or service.

Indirect costs cannot be directly traced to a product or service.

Q:
In the case of progressively variable costs, costs increase less than
proportionate (linear) to an increase in the production volum
Incorrect

It is difficult for a company to reduce fixed costs if there is a decrease in the

production volume?
Correct

Indirect costs are always fixed costs?

Incorrect

Direct costs are costs incurred to benefit multiple products or services?

Incorrect
Costs in a business can be classified to (raw materials, labour, Sustainable
production resources)

Waste: the raw materials are lost during the production process.

Scrap: the goods that have passed the production process are rejected in the
quality control.

In the gross cost of the raw materials, the waste and scrap are included.

The costs in labour sector consist of:

 gross salary
 overtime
 allowances for irregular hours
 expenses of commuting
 holiday allowance at least 8%
 pension
 social security contributions ( employee insurance, healthcare insurance )
 payroll tax
 secondary employment conditions ( bonus, company car/phone, education
and training)
 employees illness
 recruitment and selection costs
 clothing and personnel outings

The employee insurance is meant to insure employees against situations in

which there is a risk of loss of income due to unemployment, incapacity to
work, or illness.

This national insurance is meant to provide people with income in situations

such as old age, losing a close relative, and exceptional medical expenses.

Depreciation gives an indication of the decrease in the value of a SPR in each

period

it is necessary to determine the period by which the decrease in the value

should be divided. This distinguishes between technical lifespan and economic
lifespan
We discuss four methods of depreciation:
 depreciation with a fixed percentage of the purchase value;
 depreciation with a fixed percentage of the book value;
 sum-of-the-years’-digits;
 depreciations that decrease by a fixed amount or percentage per period.

Several costs are should be considered:

 sales costs (marketing);
 administration costs;
 interest expenses;
 taxes;
 operational costs (such as security, cleaning, maintenance, etc.).

Homogeneous production:
Production of one product or service.

Heterogeneous production:
Production of multiple product or services.

There are various methods to allocate indirect costs to a product or service in order to
calculate the costs per unit or service:
• Surcharge method (Surcharge);
• Cost center method (CCM); and
• Activity based costing (ABC).