In simple terms
A friendly intro before the formal notes — no formulas yet.
Cost information
9609 AS - fixed vs variable costs, total and average cost, and why accurate cost data matters for decisions.
- 1
Short run only: Fixed costs are fixed only in the time period given - rent may be fixed this year but renegotiated next year.
- 2
Direct vs indirect is different from fixed vs variable - a cost can be direct (traceable to a product) and still fixed (e.g. supervisor salary for one product line).
- 3
Classify before calculating - mislabelling a variable cost as fixed destroys break-even and contribution answers.
Explore the concept
Use the live diagram and synced steps — play it or tap a step card to walk through.
2 more simulations for this topic — run them in the Simulations section below
Simulations
Every simulation here runs the real model — try the steps on a card, then check what you see against the notes.
2 simulations
- GeoGebra9609 5.4.1
Costs, revenue and break-even
A labelled break-even chart in £: fixed, variable and total cost lines, sales revenue, shaded loss and profit, and a Sales point you drag along the units axis.
Try this
- Find the flat Fixed Costs line: it sits at £9,000 whatever the output.
- Follow the Variable Costs line from the origin: it climbs £8 for every extra unit.
- Check that Total Costs is the two added together: it starts at £9,000 and runs parallel to Variable Costs.
- Drag the Sales point and compare Sales Revenue with Total Costs at that output.
Look for Fixed costs do not change with output, variable costs rise in step with it, and total cost is the sum of the two; revenue starts at zero and rises by the price per unit.
Stuart Price · GeoGebra · GeoGebra Terms of Service
- GeoGebra9609 5.4.1
Short-run cost curves
Tick boxes show or hide the ATC, AFC, MC and AVC curves; the q slider on the output axis sets output, and each current cost is read out at the top.
Try this
- Untick MC and AVC so that only Average Total Costs and Average Fixed Costs are left.
- Drag q from 30 to 60: Current AFC halves from 3.33, because the same fixed cost is shared by twice as many units.
- Compare Current ATC at a low output and at a high one.
Look for Total fixed cost stays the same, so fixed cost per unit falls as output rises; that is why average cost per unit drops when a business produces more.
tbki · GeoGebra · GeoGebra Terms of Service
Key formulas
Tap any symbol to reveal exactly what it means and its units.
Tap a symbol — great for exam definitions
Full topic notes
Formal explanation with the rigour you need for the exam.
Fixed and variable costs
Fixed costs (FC) do not change when output changes in the short run. Examples: rent, insurance, salaried management, depreciation on existing equipment.
Variable costs (VC) change in proportion to output. Examples: direct materials, packaging, sales commission per unit, piece-rate wages.
Some costs are semi-variable (mixed): e.g. electricity with a fixed standing charge plus usage. In exams, follow the case instructions - either split the cost or treat it as given.
Short run only: Fixed costs are fixed only in the time period given - rent may be fixed this year but renegotiated next year.
Direct vs indirect is different from fixed vs variable - a cost can be direct (traceable to a product) and still fixed (e.g. supervisor salary for one product line).
Classify before calculating - mislabelling a variable cost as fixed destroys break-even and contribution answers.
Total cost and average cost
Once costs are classified, they can be aggregated to find the total cost of production for a given period or output level. From this, the average cost per unit can be calculated, which is a crucial metric for pricing decisions, measuring efficiency, and determining profitability per unit.
Total cost (TC) = Fixed costs + Total variable costs
Average cost (AC) =
Average fixed cost (AFC) =
Average variable cost (AVC) =
As output increases, average fixed cost falls (fixed costs spread over more units). Average variable cost may stay constant or rise if, for example, overtime or bulk discounts change unit costs. Average total cost typically falls then may rise - the familiar U-shape in theory, though 9609 focuses on calculation not drawing AC curves.
Importance of accurate cost information
Managers use cost data to set prices, measure profit by product, control spending, and plan production. Inaccurate data - missing overheads, wrong classification, outdated material prices - leads to selling below cost, overstated profit, and poor decisions.
In case studies, list costs from the text in a table (Cost | Fixed/Variable | $ amount) before any calculation. Examiners reward clear classification even when the final number is wrong.
Worked examples
See the formulas applied — reveal one step at a time, like the exam.
A workshop has fixed costs of $8,000 per month. Variable cost is $12 per unit. Calculate total cost and average cost when output is (a) 500 units, (b) 1,000 units.
- 1
At 500 units Total variable cost = 500 × $12 = $6,000 Total cost = $8,000 + $6,000 = $14,000 Average cost = $14,000 ÷ 500 = $28.00 per unit
Artisan Bakes produces 2,000 loaves of bread per month. Its monthly costs are: Flour ($0.80 per loaf), Bakery Rent ($2,500), Baker's Salary ($3,000), Packaging ($0.10 per loaf), Utilities ($500), Marketing ($200). Classify these costs and calculate the total cost and average cost per loaf for the month.
- 1
Step 1: Classify costs
- Fixed Costs (FC): Costs that do not change with output.
- Bakery Rent: $2,500
- Baker's Salary: $3,000
- Utilities: $500
- Marketing: $200
- Variable Costs (VC): Costs that change with output.
- Flour: $0.80 per loaf
- Packaging: $0.10 per loaf
- Fixed Costs (FC): Costs that do not change with output.
How it all connects
The big idea sits in the middle — tap a linked idea to explore the link.
Tap a linked idea to see how it connects back to the main topic — that connection is what examiners reward.
Glossary
Key terms for this topic — skim now; the Check step will test them.
- semi-variable
E.g. electricity with a fixed standing charge plus usage. In exams, follow the case instructions - either split the cost or treat it as given.
- average fixed cost falls
As output increases, average fixed cost falls (fixed costs spread over more units). Average variable cost may stay constant or rise if, for example, overtime or bulk discounts change unit costs. Average total cost typically falls then may rise - the familiar U-shape in theory, though 9609 focuses on calculation not drawing AC curves.
- Fixed cost
A cost that does not change with the level of output in the short run (e.g. rent, salaried staff, insurance).
- Variable cost
A cost that changes in direct proportion to output (e.g. raw materials, commission, packaging).
- Total cost formula
Total cost = Fixed costs + Total variable costs.
- Average cost formula
Average cost = Total cost ÷ Output (units).
- classify costs as fixed
Enables contribution analysis, break-even, pricing decisions, and budget control.
- Semi-variable (step)
Electricity with a standing charge plus usage - partly fixed, partly variable.
- Average cost and output
As output rises, average fixed cost falls (spreading overheads); average variable cost may rise if efficiency falls.
Quick check
Write your answer first, then compare it with the model one — the gap is what you would have lost.
Teach it back
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Teach it back
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Revision flashcards
Guess first, then flip — retrieval beats re-reading.
Key takeaways
Review these before you close the topic — retrieval beats re-reading.
Short run only: Fixed costs are fixed only in the time period given - rent may be fixed this year but renegotiated next year.
Direct vs indirect is different from fixed vs variable - a cost can be direct (traceable to a product) and still fixed (e.g. supervisor salary for one product line).
Classify before calculating - mislabelling a variable cost as fixed destroys break-even and contribution answers.
Practice — then mark it
The whole point: a real Cambridge question, marked mark-by-mark.
Mark a cost information question
Mark a cost information question
Extra simulations & links
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Frequently asked
Checkpoint
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Before you move on: do Mark a cost information question on paper, snap a photo, and get examiner-style feedback on exactly where you win and lose marks.
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