CIMA Fundamentals of Business Economics (BA1) Practice Exam

Total cost is the sum of what doesn’t change with output (fixed costs) and what varies with output (variable costs). Fixed costs stay the same regardless of production in the relevant period, while variable costs depend on the level of production. Add the fixed amount to the variable amount to get total costs. For example, if fixed costs are 1,000 and producing 500 units incurs 3 per unit in variable costs, variable costs are 1,500, so total costs equal 2,500. Average costs would be total costs divided by the number of units produced, not the sum itself.