Variable Cost Essay

For both scenarios, the firm’s output price and average variable cost are the same. The difference lies in the average total cost. Because the total fixed cost is significantly higher, the average total cost is also significantly higher. It would be highly recommended that the firm shut down if total fixed costs are equal to 3,000,000. In the first scenario, the firm is also losing money. We would recommend laying off ten percent of the staff (5000 employees) to account for the $400,000 loss. However, it is important to note, employee productivity must be increased to 4.44 in order to maintain the 200,000 units per day. This would allow the firm to operate in a break even state.

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.

Note: You can assume that variable costs are constant so that the average of them is the variable cost relevant for a change in sales.

| Use this information for questions that refer to the World Tennis Ball (WTB) Company case.

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

To effectively plan overhead costs for a product the management must aim to eliminate activities that do not add any value to the product in question. The process of costing is very important in that it supplies information on evaluation and control to various aspects of a business enterprise. Variance measures price and quantity differences that occur in any budgeted and actual prices and quantities. There exist a difference between fixed overhead spending variance and variable overhead spending variance in that the fixed overhead spending variance does not include estimation error while variable spending variable does.

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,

Production Volume The Fig 1.1 Graph representing Fixed Cost, Total Cost, Total Revenue & Break Even Volume.

According to this method, every unit of the product is assigned all direct, fixed, and variable costs. This method includes the cost of direct materials and labor as well as a portion of the overhead costs associated with it in the final costing of every unit of the product.

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

In cost accounting, the lack of understanding of the accounting and finance process by the business manager is an incentive for the unethical employee to manipulate the system. Ethics help management in: · Providing factual and true information to its users, · Determining the nominal price of its products, · Maintaining appropriate professional relationships, and · Maintaining efficacy In today?s world of corporate scandals, an appreciation of ethical standards and a commitment to the proper reporting and disclosure of financial information needs to be constantly reinforced within the area of accounting. Absorption and Variable Costing: Absorption Costing: All costs (fixed and variable) of production are product costs. Which means under absorption costing, both variable and fixed manufacturing costs are included as a part of the cost of the product manufactured.

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.

Based on the real world functioning of businesses, every organization that deals with the process of manufacturing of certain products operates in accordance with the main principle of maximizing its profits. During the performance of daily activities, many business managers face a series of questions related to planning, control and decision making. In order to give answers to all these questions, an additional analysis needs to be considered. It is very important for managers to plan carefully how they are going to generate sufficient money to pay down costs and, in this way to result with a profit. As managers are interested in having the adequate information about the influence that certain actions might have on the profitability of the business, "Cost Volume and Profit" analysis plays a significant role by being a potential tool in facilitating the process of making the right decisions regarding planning and control in order to add value to the company. (Trifan and Anton, 2011). To further illustrate the essential impact that CVP analysis has on management authorities in making better decisions, I will refer to and analyze the case of the Hampshire Company which follows as below.

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,

In other words, variable cost per unit is equal to the slope of the cost volume line (i.e. change in total cost ÷ change in number of units produced).