Cost Classification

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.

On the other hand Dr. Pepper-Snapple Group does have a large number of fixed cost. Fixed costs are “cost that are constant and must be paid no matter what level of the activity is chosen.” DP has over 21 manufacturing centers and 115 distribution centers around the world, according to Dr. Pepper Snapple Group ‘s annual report. This means that DP is paying rent on a large number of buildings, leasing our buying equipment that they use at these facilities in order to produce DP. Those are example of fixed cost, cost that have to be paid no matter what, this also means that if you have a bad year and your company did not make as much as it did the year before you still have to pay for the rent and utilities on all of those facilities.

Semi-fixed, where costs are fixed for a given level of activity but change in steps when activity levels exceed or fall below these given levels.

A more difficult task is identify and planning for variable costs. Variable costs can change from month to month and sometimes cannot be planned for.

3. Fixed costs will often be irrelevant because they: A. B. C. D. Are fixed in amount. Are the same each time period. Typically do not differ between options. Are not committed.

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

This memo highlights segmented reporting and the variable approach to preparing income statements. Segmental reporting is necessary since there is a need to understand the cost data for each section. Proper cost allocation is critical to preparing the income statements, while it is also easier to identify the costs that are common and not attributable to any specific segment. Typically, the management analyzes the cost behavior by making the assumption that the total costs change occur because of change in level of a single activity (Slideshare, n.d.). The variable costing

A variable cost is a corporate expense that varies with production output. Variable costs are those costs that vary depending on a company's production volume; they rise as production increases and fall as production decreases (Variable Cost, n.d.); in the case study for all cost per event such

Variable Costing: Only those costs of production that vary directly with activity (variable costs) are treated as product costs. Under variable costing, only the variable manufacturing costs are included as a part of the cost of the product manufactured. The fixed manufacturing costs are treated as an expense of the period in which they are incurred. Selling and administrative costs

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,

Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.

C. T. Horngren, A. Bhimani, S. M. Datar, G. Foster (2005), 'Activity-Based Costing', Management and Cost Accounting (Prentice Hall Europe), 345-363

There are different costs that respond to the different activities like variable costs are directly associated with the products sold. The cost behavior patterns of selling, general, administrative, and other operating expenses are determined, and these expenses are budgeted accordingly. For example, sales commissions will be a function of the forecast of either sales dollars or units. The historical pattern of some expenses will be affected by changes in strategy that management may plan for the budget period. In a participative budgeting system, the manager of each department or cost responsibility center will submit the anticipated cost of the department 's planned activities, along with descriptions of the activities and explanations of significant differences from past experience. After review by higher levels of management, and perhaps negotiation, a final budget will be established. Because of the necessity to recognize cost behavior patterns for planning and control purposes, overhead costs will be classified as variable or fixed.