Explain the Difference Between Fixed and Variable Costs, Making Appropriate References

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Task 1: Explain the difference between fixed and variable costs, making appropriate greference to Phoenix Ltd Fixed and Variable Costs Fixed costs These are costs that remain the same every time that they are paid but in the short term. The costs are fixed by their nature and not the amount. This means that if the costs change it doesn’t mean that they are not fixed. These costs are paid periodically e.g. fortnightly or monthly. Examples of these costs are rent, insurance, utility bills and capital expenditure. The costs stay the same in the short term and have to be paid however the business is running. E.g. rent still has to be paid regardless to if the business is running successfully. The costs may increase in the long run due to things like inflation. Variable costs These are costs which can increase depending on the business’s output. As a business’s output rises, so do the variable costs. Examples of these costs are stock, wages (if paid by piece rate or commission) and raw materials. If a business does well in one month and has to buy in extra stock, their variable costs will increase because they have paid more money for more stock. The difference between these two costs are that fixed costs are not related to the business’s output whereas variable costs are. There are fixed costs and variable costs that your business, Phoenix Ltd, will incur. The fixed costs that your business will incur are: Capital expenditure The items related to the capital expenditure are fixed costs because they are fixed assets. They are fixed by their nature. These items are the new vans, fixtures and fittings and a till for the business. These things may be a one off cost but the fixtures and fittings, vans and the till are needed and are not directly related to the output of the business. Marketing These items are the newspaper adverts, leaflets and

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