In all businesses it is very important to realise thedifference between variable costs and fixed costs and average and marginalcosts. This is because all companies face costs when they areproducing goods and services, which can be fixed or variable. When the totalfor a company is calculated it is made up of its total fixed costs and totalvariable costs. However, variable cost can be verify depending on the producedamount of goods whereas the fixed costs always remains the same and it doesn’tmatter how much the company produces.
Average cost is the same as the total cost which is dividedby the amount of goods produced. The formula to calculate average cost is AC=TC(total cost)/Q (quantity). Marginal cost is the extra cost, which has sustainedin the production. It is important toremember marginal cost because it helps to calculate the profit, which isincreasing. There are many examples of variable costs and fixed costs inthe bakery.
However, in order to keep the bakery running it is very vital tomake sure that they are recognised as different costs and not the same. The examples of variable costs in a bakeryare ingredients, supplies and packaging materials, payroll and electricity. The examples of fixed costs in a bakery arecost of machinery, rent and wages. In order to bake it is important to have ingredients whichmeans they would vary each time this means it would be identified as a variablecost. For example if the bakery spends £5000 on ingredients this month and thenthe bakery bakes 5% more food then next month it would mean that the cost ofthe ingredients would rise by 5%.
Another example of variable cost in the bakery is suppliesand packaging materials. These materials would be variable depending on howmuch food is baked. For example if £100 is spent on packaging and 500 cupcakesare baked then in order to make double £200 would be spent. Therefore suppliesand packaging materials would all depend on how much food is baked. An example of fixed cost in the bakery is the cost ofmachinery.
This is because when the bakery is set up then expensive machinerylike ovens, microwaves, food processors etc. were brought and these aremachinery, which would last for a long time. Therefore this would be a fixedcost at the bakery. Another example of fixed cost in the bakery is wages forworkers. Obviously there are going to be workers at the bakery with differentroles therefore they would be paid as well.
The wage is a fixed cost, as itwould be given to the workers each month.