Fixed Cost Accounting

The total cost of production of Sony’s new product is the addition of both fixed and variable costs. Fixed costs are assets within a business that are not used up or sold during the typical production course e.g. buildings and machinery. Variable costs are costs that fluctuate in time with the production output or sales revenue of a company such as Sony e.g. raw material and labour costs. Figure 1.1 shows how the total cost is composed of both fixed and variable costs.

Fixed costs are what it costs a company to run before they make any products irrespective of the level of activity e.g. rent & rates, insurance, salaries, utilities.

Variable Cost defines the cost of a single assembled product based on the materials consumed and labor invested directly in unit production. To illustrate our point, we can say that making a single baked potato with all of the fixings will cost $3.00 to produce (potato, sour cream, chives, plate, fork, napkin and labor). If we decide to go into the baked potato business, we must then sell these potatoes for at least $3.00 per unit. Any less would cause us to lose money on the endeavor. This cost cannot be made up by increasing volume of sales. Judy Koch discussed the fact that bulk purchases can benefit you reduce these variable costs. If we decided to purchase potato-making materials in larger quantities and hired more workers to produce these products, we could

Hi Conster, cost behaviors impact businesses in the way that if the raw material increases, the finished goods will also increase. For instance, every year the price of the steel goes up; therefore, any product build with steel will have an impact on their prices to cover up the increase in paid for the raw material (Edmonds,

If the marginal product per dollar spent on capital is less than the marginal product per dollar spent on labor, then in order to minimize costs the firm should use

The author was able to provide a detailed aspect of variable costing with clear emphasis on the importance of variable costing. According to the author, differentiating between fixed and variable costs is the first step in controlling costs. The article is helpful in understanding cost relationship and its correlation to cost absorption in manufacturing

Companies employ operating leverage when they use proportionately more fixed costs that variable costs to magnify the effect on earnings of changes in revenue (Edmonds, Tsay, & Olds, 2011, p.57). Home Depot utilized the accounting concept of operating leverage, which justifies why the percentage change in a company’s net earnings is typically greater than the corresponding percentage change in its revenues. As operating leverage increases (decreases), both the overall and systematic volatility of the stock's return increases

This could not only bring the “Variable Cost” down to 7,000 it could bring it down engough to have a “Clothing” profit. Also applying this to the other two areas (hardware & sporting goods) “The ABC Department Store”. could very well reduce their “Varablie Cost” as well. Implemanting this statagy that (Summers, 2011) suggests would be a wise move for all management and employees at “The ABC Department Store”. The many goal of any company is to (lower cost & increase profit) and with the data provide it is bet to keeping the “Clothing” and implament “ Summers Stratagy” would be the best course for “The ABC Department

3. A labour-intensive company will have low fixed costs and a correspondingly low break-even point. However, the impact of operating leverage on the firm is small and there will be little magnification of profits

Variable costs, on the other hand, are explicit expenses that vary with production output levels. As production output increases, variable expenses also increase. Variable costs that could be included in the manufacturing of dealybobs are the cost of the materials used in production. For example, if demand

Variable costs –Variable costs is costs that changes depending the amount of the level of output or sales by the business.

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. The key is that in the flexible budget, both fixed and variable costs are subject to change. In most cases,

ratio of fixed costs and variable costs might also be exploited strategically. A company with lower fixed cost ratio can lower prices

➢ Fixed costs - with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.