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.
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
Try to recall each definition before you reveal it.
Quick check
Answer in your head first — then tap to check. No pressure.
Revision flashcards
Flip the card. Test yourself before the exam.
What is a fixed cost?
A cost that does not change with the level of output in the short run (e.g. rent, salaried staff, insurance).
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
PhET, GeoGebra and other curated tools — open in a new tab.
Frequently asked
Checkpoint
One marked question is worth ten re-reads — close the loop before you move on.
Reading it isn’t knowing it — prove it.
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.