Variable or Fixed Expense Essay

Having the capacity to determine whether a cost is fixed or changing is vital to the understanding of expense loading and cost behavior. A fixed value is unchanged having a change to the cost driver. (Horngren, Sutton, and Stratton g. 46) Meaning a fixed cost does not surge with the change is production of your item. A good example of a set cost is rent. No matter how a large number of widgets you choose (within a relevant range) the rent will not likely increase. A variable cost, on the other hand, really does change together with the amount of production. A good example of this is recycleables. If you produce more widgets you will need even more raw materials to make those widgets. So a variable expense changes in immediate proportion in the cost driver level. (Horngren, Sutton, and Stratton s. 46)

The given info is that organization ABC produces 1000 hamburgers annually. To produce this volume they dedicate $650 in raw materials (hamburger) and the lease for the production facility can be $9000 yearly. With these details we can compute the amount of uncooked material necessary to produce a single hamburger $0. 65. Applying this we can estimate expected costs if production increases. Pertaining to 6000 burgers annually the price of raw materials can be $3900 while at the 8000 burgers it is $5200. Since the facility rent is usually unchanged according to number of hamburgers. It's per unit expense decreases respectively. 6000 burgers is $1. 50 per unit including 8000 it is $1. 13. Where as at the start the rent overhead is definitely $9. 00 per product.

To create 6000 burgers annually there is $9000 in fixed lease costs additionally $3900 in raw materials, amassing $12900 each year. To produce 8000 hamburgers every year there would be $9000 in fixed rent costs plus $5200 in unprocessed trash, totaling $14200 annually.

6000 burgers would produce an annual per unit fee of $2. 15. 8000 hamburgers yearly would be $1. 78 every unit.

Deciding the varying and fixed costs of a production can help you forecast growth and...

References: Horngren, C., Sundem, G., Stratton, W., Summary of Management Accounting, 13th Model, Pearson Education International

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