key words - page 5

Question 1

Fixed Costs

Answer 1

These costs do not change when output changes, for example the rent of a premises must be paid even though the factory may be closed due to strike or other unforeseen circumstances. Similarly insurance on a firms vehicles must be paid regardless of mileage.

Question 2

Variable Costs

Answer 2

These are the costs that change when output changes, for example, wages and raw materials.

Question 3

Semi-Variable Costs

Answer 3

These consist of a fixed or standing charge plus an extra rate which varies according to use.

Question 4

Break Even Point

Answer 4

This is the level of sales at which a firm is breaking even, i.e. neither making profit or loss. Total revenue equals total costs.