Tuesday, July 17, 2012

When would total cost equal fixed costs?

Total costs would equal fixed costs when turnover is zero.


In economic and business analysis total costs of production or of goods sold are often classified in two components as fixed costs and variable cost.


Fixed costs are defined as the costs that remain constant irrespective of the total production or sales turnover. Variable costs on the other hand vary directly with the turnover. The total cost at a given level of turnover is the sum of fixed cost plus variable cost.


When the turnover is zero, the variable cost is also zero, and therefore, the the total cost is equal to the fixed cost.

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