Business Management
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- Date Submitted: 11/24/2015 06:53 PM
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MEMORANDUM
TO: ABC LTD MANUFACTURING COMPANY
FROM: MANAGEMENT ACCOUNTANT
SUBJECT: IMPORTANCE OF INFORMATION PLANNING, DECISION-MAKING & CONTROL ACTIVITIES
DATE: 28TH APRIL 2015
Variable costs and Fixed costs
A variable cost is a cost that changes directly in proportion to the changes in the cost driver. Investopedia (n.a) also goes on to define variable costs as ‘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’.
In variable costs, the costs per unit do not change and the total costs do not change as well, however in a fixed cost, the costs per unit do change and the total costs do not change within relevant range. Variable expenses can incorporate direct material expenses or direct work costs important to finish a certain venture. For instance, an organization may have variable expenses connected with the bundling of one of its items. As the organization moves a greater amount of this item, the expenses for bundling will increment. Alternately, when less of these items are sold the expenses for bundling will thusly diminish.
However a fixed cost is a cost that does not immediately get affected by the changes in the cost driver. Investopedia (n.a) also defines fixed costs as A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.
An example of a fixed expense would be an organization's lease on a building. In the event that an organization needs to pay €10,000 every month to take care of the expense of the lease however does not produce anything during the month, the lease instalment is still due in full. In financial aspects, a business can...
TO: ABC LTD MANUFACTURING COMPANY
FROM: MANAGEMENT ACCOUNTANT
SUBJECT: IMPORTANCE OF INFORMATION PLANNING, DECISION-MAKING & CONTROL ACTIVITIES
DATE: 28TH APRIL 2015
Variable costs and Fixed costs
A variable cost is a cost that changes directly in proportion to the changes in the cost driver. Investopedia (n.a) also goes on to define variable costs as ‘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’.
In variable costs, the costs per unit do not change and the total costs do not change as well, however in a fixed cost, the costs per unit do change and the total costs do not change within relevant range. Variable expenses can incorporate direct material expenses or direct work costs important to finish a certain venture. For instance, an organization may have variable expenses connected with the bundling of one of its items. As the organization moves a greater amount of this item, the expenses for bundling will increment. Alternately, when less of these items are sold the expenses for bundling will thusly diminish.
However a fixed cost is a cost that does not immediately get affected by the changes in the cost driver. Investopedia (n.a) also defines fixed costs as A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.
An example of a fixed expense would be an organization's lease on a building. In the event that an organization needs to pay €10,000 every month to take care of the expense of the lease however does not produce anything during the month, the lease instalment is still due in full. In financial aspects, a business can...