# Types of costs

Source: https://projectalevel.co.uk/business_studies/finance/fixed_variable_semi_variable_costs

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Costs are expenses the company has to pay during the production of its product. There are 3 main types of costs, these are: fixed costs, variable costs, and semi-variable costs:

#### **Fixed costs**

- Costs that don't change over a period of time and don't vary with output.
- E.g. salaries, rent, tax, insurance, heating and lighting.
- Fixed costs can also be called indirect costs as they are not directly associated with the final product.
- Fixed costs have to be paid even if the company is not producing any goods.

#### **Variable costs**

- Costs that vary directly with output so when output increases, variable costs also increase.
- E.g. raw materials, electricity.
- Variable costs can also be called direct costs as they are directly associated with production.

#### **Semi-variable costs**

- These costs have fixed and variable elements.
- E.g. a person working for the company may have a fixed salary but may also earn commission on sales.

Total costs are calculated by adding together fixed, variable and semi-variable costs.