Is Equipment A Fixed Or Variable Cost
FIXED AND VARIABLE EXPENSES
Photo past: Adam Gryko
Fixed and variable expenses are the two chief components of a company's total overhead expense. Fixed costs are those that do not fluctuate with changes in product action level or sales volume, such every bit rent, insurance, dues and subscriptions, equipment leases, payments on loans, depreciation, management salaries, and advertising. Variable costs are those that answer directly and proportionately to changes in activeness level or book, such equally raw materials, hourly wages and commissions, utilities, inventory, function supplies, and packaging, mailing, and shipping costs.
Although stock-still costs practice not vary with changes in production or sales volume, they may modify over time. As a result, fixed costs are sometimes called flow costs. Some fixed costs are incurred at the discretion of a company's direction, such every bit advertising and promotional expense, while others are not. Information technology is important to remember that all non-discretionary fixed costs volition be incurred even if production or sales volume falls to nix. Although production and sales volume are the master factors determining the level of variable costs incurred by a company, these costs too may fluctuate in relation to other factors, such as changes in suppliers' prices or seasonal promotional efforts. Some expenses may have both stock-still and variable elements. For example, a company may pay a sales person a monthly salary (a fixed cost) plus a percentage commission for every unit sold higher up a certain level (a variable cost).
It is important to empathize the behavior of the different types of expenses as product or sales volume increases. Full fixed costs remain unchanged as volume increases, while fixed costs per unit of measurement decline. For example, if a bicycle business organisation had total fixed costs of $one,000 and but produced i wheel, so the full $1,000 in fixed costs must be applied to that bike. On the other paw, if the same business organisation produced 10 bikes, then the fixed costs per unit pass up to $100. Variable costs behave differently. Total variable costs increment proportionately equally volume increases, while variable costs per unit remain unchanged. For example, if the wheel company incurred variable costs of $200 per unit, total variable costs would be $200 if merely i wheel was produced and $2,000 if 10 bikes were produced. Nevertheless, variable costs applied per unit of measurement would be $200 for both the offset and the tenth bike. The company'due south total costs are a combination of the stock-still and variable costs. If the bicycle company produced 10 bikes, its total costs would be $one,000 fixed plus $2,000 variable equals $iii,000, or $300 per unit.
It is very important for small business concern owners to empathise how their various costs respond to changes in the volume of goods or services produced. The breakdown of a visitor's underlying expenses determines the assisting price level for its products or services, as well every bit many aspects of its overall business organisation strategy. A small business concern owner can employ a cognition of fixed and variable expenses to determine the company's suspension-even indicate (the number of units or dollars at which total revenues equal total costs, so the company breaks even), and in making decisions related to pricing goods and services.
Determining the stock-still and variable expenses is the commencement step in performing a intermission-even assay. The number of units needed to break even stock-still costs / (price variable costs per unit). This equation provides a small concern owner with a great deal of valuable information by itself, and it can besides be changed effectually to answer a number of important questions, like whether a planned expansion will exist profitable. Knowing how to work with data about fixed and variable expenses can be especially helpful for individuals who are considering ownership a small business. Many businesses, peculiarly franchises, are reluctant to give out information about projected profits, but will provide information about costs and unit prices. The potential purchaser can then employ this data to calculate the number of units and the dollar volume that would exist needed to brand a profit, and determine whether these numbers seem realistic.
Further READING:
Duncan, Ian. "Decision-making Expenses: The Cardinal to Profitability in a Recession." CMA—The Management Bookkeeping Mag. Nov 1992.
Hilton, Ronald West. Managerial Accounting. New York: McGraw-Hill, 1991.
Livingstone, John Leslie. The Portable MBA in Finance and Bookkeeping. New York: Wiley, 1992.
"Numbers You Should Know to Keep in Touch with Your Business." Turn a profit-Edifice Strategies for Business Owners. May 1993.
Thompson, Kevin D. "Business organization Direction: Planning for Profit." Black Enterprise. April 1993.
Other articles yous might like:
Is Equipment A Fixed Or Variable Cost,
Source: https://www.referenceforbusiness.com/small/Eq-Inc/Fixed-and-Variable-Expenses.html
Posted by: ortegaandutimmose.blogspot.com
0 Response to "Is Equipment A Fixed Or Variable Cost"
Post a Comment