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Business & economics · Grades 9–12

Costs, contribution and opportunity cost

Fixed cost is unchanged over the stated output range; variable cost changes with output in the specified model. Real classifications depend on time horizon.

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Prerequisites

Relevant school subject foundations and careful reasoning.

Study notes

Costs

Fixed cost is unchanged over the stated output range; variable cost changes with output in the specified model. Real classifications depend on time horizon.

Contribution

Unit contribution is price minus variable cost per unit. Break-even units cover fixed cost and should be rounded upward when whole units are required.

Opportunity cost

Choosing one feasible option forgoes another. The value of the next-best alternative belongs in decision reasoning.

Scope

These are simplified educational models, not personalized financial advice or forecasts of a real business.

Worked examples

Price is 20 and variable cost is 12 per unit. Find unit contribution.

20−12=8.

8 currency units

Fixed cost is 100 and contribution 8 per unit. Find minimum whole units to break even.

100/8=12.5, rounded upward to 13.

13 units

Check your understanding

  1. Which is the opportunity cost of a choice?

    1. The value of the next-best forgone feasible alternative
    2. Always zero if no cash changes hands
    3. Only the receipt total
    4. Every past sunk cost automatically

  2. Revenue is 300 and total cost is 250. Find model profit.

  3. Why can a cost be fixed in one time horizon but variable in another?

  4. Should a past unrecoverable sunk cost automatically determine a new choice?

    1. Yes, always
    2. Only when printed in bold
    3. Only if the cost is large
    4. No

Answers and marking guidance

Answers and marking notes
  1. The value of the next-best forgone feasible alternative

    Opportunity cost concerns what is given up.

  2. 50 currency units

    Revenue minus total cost is 50.

  3. Contracts, capacity and staffing can be adjustable over longer periods even when fixed during a short operating interval.

    Credit time-dependent constraints.

  4. No

    Relevant future consequences and alternatives should be considered.

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