Understanding fixed and variable costs is really important for businesses that want to make the most money.
1. Fixed Costs:
These costs are the same no matter what.
For example, things like rent or worker salaries don’t change if a business sells more or less.
2. Variable Costs:
These costs can change depending on how much a company produces.
For instance, if a bakery needs more ingredients to make more bread, those costs will go up or down.
To make the most profit, businesses need to look at the difference between how much money they make (total revenue) and all their costs (both fixed and variable).
For example, if a bakery bakes 100 loaves of bread, the money spent on ingredients will change based on how many loaves they make. But the rent for the building will stay the same.
In simple terms, understanding these costs helps businesses set better prices and decide how much to produce!
Understanding fixed and variable costs is really important for businesses that want to make the most money.
1. Fixed Costs:
These costs are the same no matter what.
For example, things like rent or worker salaries don’t change if a business sells more or less.
2. Variable Costs:
These costs can change depending on how much a company produces.
For instance, if a bakery needs more ingredients to make more bread, those costs will go up or down.
To make the most profit, businesses need to look at the difference between how much money they make (total revenue) and all their costs (both fixed and variable).
For example, if a bakery bakes 100 loaves of bread, the money spent on ingredients will change based on how many loaves they make. But the rent for the building will stay the same.
In simple terms, understanding these costs helps businesses set better prices and decide how much to produce!