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9609 · 5.4.1

Cost information — practice questions

Practice and worked examples for 9609 Cost information. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

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.

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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

At 1,000 units Total variable cost = 1,000 × $12 = $12,000 Total cost = $8,000 + $12,000 = $20,000 Average cost = $20,000 ÷ 1,000 = $20.00 per unit

Average cost falls because fixed costs are spread over more units (AFC falls from $16 to $8).

Worked example 2

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.

Show solution outline

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

Step 2: Calculate Total Fixed Costs (TFC) TFC = $2,500 + $3,000 + $500 + $200 = $6,200

Step 3: Calculate Total Variable Costs (TVC) Variable cost per unit = $0.80 (flour) + $0.10 (packaging) = $0.90 TVC = Variable cost per unit × Output TVC = $0.90 × 2,000 = $1,800

Step 4: Calculate Total Cost (TC) TC = TFC + TVC TC = $6,200 + $1,800 = $8,000

Step 5: Calculate Average Cost (AC) AC = Total Cost ÷ Output AC = $8,000 ÷ 2,000 loaves = $4.00 per loaf

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