# 5.3 What are the costs of production?

Quick review
We still need the theory we learned in the previous sections.
Just a couple questions to see if we remember it...
1 / 26
Slide 1: Tekstslide
EconomieMiddelbare schoolhavoLeerjaar 3

In deze les zitten 26 slides, met interactieve quizzen en tekstslides.

## Onderdelen in deze les

Quick review
We still need the theory we learned in the previous sections.
Just a couple questions to see if we remember it...

#### Slide 1 -Tekstslide

What are the different forms of business organisations?

#### Slide 2 -Open vraag

The owner's equity of a corporation and a LLC consists of...

#### Slide 3 -Open vraag

What is a balance sheet?

#### Slide 4 -Open vraag

An example of a fixed asset is...
A
Stock of goods
B
Bank account
C
Building
D
Owner's equity

#### Slide 5 -Quizvraag

An example of a long-term debt is...
A
debtors
B
creditors
C
bank account
D
mortgage loan

#### Slide 6 -Quizvraag

5.3 What are the costs of production?

#### Slide 7 -Tekstslide

Costs
In order to keep going with your company, you have to earn enough money to pay for all the costs

• Costs of goods sold - the amount paid for the products that have been sold
• Operating costs - the sum of all other costs

#### Slide 8 -Tekstslide

Emily bought 70 shirts to sell in her new clothing shop.
A
Costs of goods sold
B
Operating costs

#### Slide 9 -Quizvraag

Justin paid the bill from the landlord, the rent of his shop was € 1200 this month
A
Costs of goods sold
B
Operating costs

#### Slide 10 -Quizvraag

Operating costs
Operating costs can be divided in two categories:
• Fixed costs - these costs are independent of output
• Variable costs - are dependent on output

Total costs (TC) =  average variable costs (AVC) x number of products sold (q) + total fixed costs (TFC)
TC = AVC x q + TFC

A
Fixed costs
B
Variable costs

#### Slide 12 -Quizvraag

Packaging material costs are...
A
Fixed costs
B
Variable costs

#### Slide 13 -Quizvraag

A company's total costs is € 250,000 when they sell 10,000 products. Variable costs are € 7.50 apiece. Calculate the fixed costs of this company.

#### Slide 14 -Open vraag

A company's total fixed costs are €175,000. The variable costs per product are €7.50. Calculate the total costs at a production of 20,000 products.

#### Slide 15 -Open vraag

Different types of operating costs
• Cost of labour -  the sum of all wages paid by an employer
• Housing costs - the sum of all costs related to the building
• Selling/distribution expenses - the costs related to sales and distribution

#### Slide 16 -Tekstslide

Robert gives the bank the assignment to transfer money to all employees on the 25th of each month
A
Housing costs
B
Selling/distribution costs
C
Costs of labour

#### Slide 17 -Quizvraag

Nellie pays the landlord €500 to fix a broken panel in her shop
A
Housing costs
B
Selling/distribution costs
C
Costs of labour

#### Slide 18 -Quizvraag

John wants an advertisment in the newspaper, it will cost him €75.
A
Housing costs
B
Selling/distribution costs
C
Costs of labour

#### Slide 19 -Quizvraag

Costs of interest
• Costs of interest - the amount  of interest paid on loans
• Redemption - repaying your loan

Amount of interest per year = percentage of interest x  outstanding loan

#### Slide 20 -Tekstslide

John secured a loan of €300,000 for his enterprise. He has to pay 4.5% interest a year on the outstanding loan. He has to redeem the loan in 30 equal instalments. Calculate the amount of interest John has to pay in the first year.

#### Slide 21 -Open vraag

John secured a loan of €300,000 for his enterprise. He has to pay 4.5% interest a year on the outstanding loan. He has to redeem the loan in 30 equal instalments. How much interest does John has to pay at the end of the third year?

#### Slide 22 -Open vraag

Depreciation costs
• Depreciation costs -  the costs of a decrease in asset value
For example: a car will lose value due to use, after a couple years it will need to be replaced

Yearly depreciation costs = (purchase value - salvage value) / estimated life

#### Slide 23 -Tekstslide

A machine with a total purchase value of €200,000 has a salvage value, after six years, of €20,000. Calculate the yearly depreciation.

#### Slide 24 -Open vraag

Frank buys a new car for € 15,000. After five years, he sells the car for 40% of the original purchase value. The depreciation charges per annum will therefore be:
A
1,200
B
1,800
C
2,000
D
9,000

#### Slide 25 -Quizvraag

Homework
Finish the questions of section 5.3
(Q 28 - 44)