Costs: any expenditure made in order to produce during a period of time
Direct cost (DC): costs that could be associated, identified, allocated straight with each unit of a product
Indirect cost (IC): costs that cannot be associated with any specific product
Fixed cost (FC): any costs regardless the production level (Q)
Variable cost (VC): all costs that vary together with the output (Q)
Total Cost: VC + FC = DC + IC
Marginal cost: the extra cost because of producing an extra unit of production
Total revenue (TR): the income of a business in a period of time because of the sales of the output
Margin of safety: the amount of production by which the sales level exceeds the break even output.
Full Capacity: maximum level of production for the level of fixed capital installed.
Break-even point: is a combination of an output and total revenue from which the company will start having profits.
Break-even output: The level of output at which Total costs =Total revenue.
Break-even chart: This is a graph which shows the costs and revenue of a business and the level of sales that must be made to break even.
Linear VC: whenever the production increases the VC will increase but at a same rate (not realistic)
C More realistic VC: when the production increases at the beginning the costs will increase but each time a bit less up to a point in which the efficiency of the fixed capital will be maximum and with each new unit of production the marginal cost will increase each time a bit more.
A more realistic version of the break even chart: