Variable or Fixed Cost

Being able to determine whether a embody is decided or variable is vital to the understanding of overhead laden and terms behavior. A mend cost is un diversityd with a change to the cost driver. (Horngren, Sutton, and Stratton p.46) Which means that a fixed cost does not rise with the change is production of your product. A nigh(a) example of a fixed cost is pursue. No proceeds how many widgets you cite (within a relevant range) your rent bequeath not increase. A variable cost, on the other hand, does change with the amount of production. A good example of this is raw materials. If you make more widgets you will need more raw materials to provoke those widgets. So a variable cost changes in devise proportion in the cost driver level. (Horngren, Sutton, and Stratton p.46) The given randomness is that company ABC publishs 1000 hamburgers annually. To produce this amount they hand $650 in raw materials (hamburger) and the rent for the production facility is $9000 annually. With this cultivation we behind calculate the amount of raw material indispensable to produce one single hamburger $0.65. Using this we can calculate expected be if production increases. For 6000 hamburgers annually the cost of raw materials is $3900 while at 8000 hamburgers it is $5200.

Since the facility rent is idempotent with respect to the number of hamburgers. Its per social unit cost decreases respectively. 6000 hamburgers is $1.50 per unit and at 8000 it is $1.13. Where as in the beginning the rent overhead is $9.00 per unit. To produce 6000 hamburgers annually there would be $9000 in fixed rent costs plus $3900 in raw materials, totaling $12900 annually. To produce 8000 hamburgers annually there would be $9000 in fixed rent costs plus $5200 in raw materials, totaling $14200 annually. 6000 hamburgers would produce an annual per unit charge of $2.15. 8000 hamburgers annually would be $1.78 per unit. Determining the variable and fixed costs of a product line can suffice you predict growth and... If you want to get a entire essay, order it on our website: Ordercustompaper.com

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