Fixed Costs are the rent paid for the production facility, the utility bills, some salaries (the doorman, the secretary, the guards or even the manager), and accounting, legal and consultancy bills. On the other hand, Variable Costs are incurred by the acquisition of raw materials (flower, sugar, baking soda etc.), packaging materials, distribution costs, the salaries of the kitchen staff or various taxes.
I have prepared two tables wherein I have calculated the Fixed, Variable and Total Costs for the first and the second alternatives. In the first case, the Total Variable Costs amount to $11,900, while the Total Costs reach $16,900. The Cost for one unit (bar) is 99 cents.
Total
Washington
New York
Los Angeles
Demand
17,000
10,000
5,000
2,000
Production capacity
20,000
Production
17,000
Fixed Costs
5,000
Variable Costs/unit
Variable Costs
11,900
Total Costs
16,900
Costs per unit
0.994117647
Price
evenue
34,000
Profit
17,100
The second alternative implies total Fixed Costs of $9,000, much more than in the first case, $10,200 worth of Variable Costs, Total Costs of $19,200 and a Cost per unit of…...
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Reference:
1. Costs: Fixed, Variable and Sunk Costs - Theory www.bol.ucla.edu/~lvlex/
fixed costs that Cat and Dogs, Inc. have include rent and executive salaries, which are paid no matter how many units the company builds. The company's total fixed costs are $113,200 per month. Variable costs are the factory labor and raw materials, which are $2.20 per unit ($1.50 labor plus $.70 raw materials). The company's gross profit margin per unit is 72.5%, calculated as $5.80 ($8.00 per unit sales price less $2.20 per unit cost to manufacture) divided by $8.00. The sales necessary to break even are $156,137.93. At $8 per unit, this works out to be 19,518 units, rounded, since it's not possible to make a partial unit. The following table describes the income and expenses expected by Cats and Dogs, Inc. If they sell 19,518 units:
Income (19,518 $8 units)
variable and fixed costs?
There are plenty of differences between 'fixed costs', and 'variable costs'. While variable costs are those that can be varied according to the changes taking place, fixed costs are those costs of investment goods that are used by the firm or company, with the idea that it would only be through wearing them out by way of the production of goods or by services for sale that they can eventually be recovered, in the long-term. (Fixed and variable costs: William-King) This means that the basic lesson for all entrepreneurs is that all entrepreneurs generally have some basic fixed costs that must be paid, no matter how many products they would be offering for sale, while at the same time, variable costs change according to the number of products that are being offered for sale. It is through a learned process of identification and control of their…...
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REFERENCES
"Bean Counter, Break-even analysis" Retrieved From
Downsizing/Fixed Costs
There are a number of industries that have downsized their fixed costs. Most manufacturing industries, for example, have downsized fixed costs by offshoring work, reducing the size of their workforce or by making adjustments to their pension commitments. Industries such as auto manufacturing, airlines and banks have all taken advantage of the opportunity to lower their fixed costs. Government agencies have also undertaken downsizing in recent years, again with an eye towards lowering fixed costs.
A reduction in fixed costs does not necessarily impair a company's ability to meet the needs of its customers. In many cases, the restructuring was necessary to modernize the way the company does business. In other cases, firms like Eastman Kodak have downsized because they have fewer revenues. This means that the downsizing will not affect their service levels because there are fewer customers to serve. Companies like the automakers that have restructured the fixed…...
For instance, suppose Sam Smoothtalk thinks about accepting the 300 unit offer at $295 per unit. Suppose the company who makes the offer is willing to sign an agreement to buy 300 units each month. That means that the probability quotient is 1 (the sale is a sure thing). Suppose that Sam thinks that the probability of such an offer being available each month is roughly 50%. If he tells Mr. Pecos about his opinion and Mr. Pecos (after eventually consulting the controller, Mr. Ledger) arrives to the same conclusion), then the probability factor would be 0.5. Therefore, the number of units that might be sold is:
300 (units) X 12 (months) X 0.5 (the probability factor) = 1,800 (units per year)
Add that to the initial estimate (10,000 at the beginning of the year and 11,000 after the first month) and you get 11,800 and 12,800, respectively. Compare the…...
Common costs are allocated when the cost falls under federal auspices. Costs that are the responsibility of the state, such as the 55% share of the San Luis Unit, are not included in the allocation base. Non-reimbursable costs are also not included in the allocation base and are ultimately the responsibility of the taxpayer. Some other costs are also not allocated, or are subject to unique allocation methods. These are also excluded. These include interest during construction and safety of dams' improvements.
Allocating costs for internal decision making allows managers to perform a more effective cost-benefit analysis on each project. The allocations are done on the basis of reimbursable costs. It is important for managers to understand how much of a project's cost structure is not reimbursable. However, for these public works projects, managers also need to understand the cost for each in order to make decisions with respect to utilization.…...
The service offered relies on high level of capital investments in aircraft, as well as the support services. The variable cost per passenger is relativity low. The airlines will seek to minimize their variable costs as the same time as using the capital investments in a wise manner to maximize revenues. One example of this is Southwest Airlines, the founder of the low cost carrier model, where the variable costs are minimized with a no frills service.
The challenge faced by airlines is the sell sufficient seats on each aircraft to ensure that they break even or make a profit; this is due to the high fixed cost. One approach that been the used is dynamic pricing in order to manage the demand for the flights. If a particular flight is selling well and appears to be in demand, the price of the seats will remain high as the airline…...
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References
Baye Michael, (2007), Managerial Economics and Business Strategy, McGraw-Hill/Irwin
Chadwick L (2007), Essential Management Accounting, London, Routledge
Nellis JG, Parker D, (2006), Principles of the Business Economics, London, Prentice Hall
Efficiency and Cost of Production
Production efficiency is defined as the level at which a company is no longer capable of producing additional amounts of a commodity or good devoid of lowering the level of production of another product. Efficiency in production is attained and realized when a product is manufactured and formed at its least average total cost. It outlines sufficient production devoid of wasting important resources (Investopedia, 2016). In delineation, economies of scale are the factors that make the average cost of commodity production and manufacture to decrease as the volume of its output rises (The Economist, 2008). Internal economies of scale are cost savings that accrue to a company irrespective of the market, industry or setting in which it operates. On the other hand, external economies of scale are those that profit a company owing to the manner in which its industry is organized (The Economist, 2008). In…...
Apple's cost of production includes both the cost of goods sold and the fixed costs associated with running its operation. The company's business model is that it handles the design and marketing of its products, and then contracts a third party company to produce them, usually in China. Apple maintains a gross margin of 39%, and this up from 37% in 2013, which is a reflection of the company's pricing power in the market as much as anything else. Component costs for Apple's flagship phones have been broken down and one of the trends that stands out is that the larger phones carry with them higher margins. For example, the 7 Plus carries with it $84.50 more in gross profit for the company (Mayo & Mayo, 2017). The components are slightly more expensive, and the company charges significantly more for the device. This perhaps explains the upward creep in the…...
EMEGENCY DEPATMENT COSTS: FIXED AND VAIABLE COSTS 1Case 5.3: Costs of Care in the Emergency DepartmentWhat is an example of a fixed cost in an emergency department? A variable cost?Fixed costs are costs that do not change with changes in output levels (Smith, 2013). In the emergency department, fixed costs would remain constant regardless of the number of patients. An example of fixed costs in the emergency department would be the monthly salary of permanent staff such as emergency nurse practitioners and physicians. The salary is a constant amount agreed upon at the start of the contract period and would be a standard amount regardless of the number of patients one treats in a given period. The facility incurs the cost even when no patients visit.Conversely, variable costs are costs that change with changes in output or activity levels (Smith, 2013). They increase with increases in activity levels and vice…...
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References Lee, R. H. (2019). Economics for Healthcare Managers (4th ed.). Riverside, CA: American College of Healthcare. Shim, J. K., & Siegel, J. G. (2008). Budgeting Basics and Beyond (3rd ed.). New York, NY: John Wiley & Sons. Smith, W. (2013). Student Handbook to Economics: Entrepreneurship. New York, NY: Infobase Learning.
One example has been the printer market; firms will often subsidize the printers that are sold, with the aim of creating long-term profits by the ongoing sale of the printer cartridges (Thompson, 2007). The cellular telephone market also operates in a similar manner, with mobile phone service suppliers subsidizing the cost of the handsets in order to gain a contract from a customer, the cost of the subsidy is offset against the profit that will be gained on the service contract. Therefore, the firm will need to look at the impact that ending production may have on the sale of other goods. However unless there is a complimentary item then it would appear some changes may need to take place.
If there is a loss with the fixed costs of $1,000,000 it is will be expected that higher fixed costs will increase the loss.
Assessment with fixed costs at $3,000,000 per…...
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References
Gillespie a, (2010), Business Economics, Oxford, Oxford University Press
Seal, Will; Garrison, Ray H; Noreen Eric W, (2011), Management Accounting, McGraw-Hill Higher Education
Thompson JL, (2007), Strategic Management; Awareness and Change, London, Thompson Business Press.
overhead costs and various methods in which the overhead costs are classified.
Ehrhard righam, a renowned author, states that a business cannot consider all kind of money that it earns as profits. The reason for not calling the entire amount "profit" is that the business has to pay expenses for carrying out business activities and processes. These expenses are regarded as the operating costs. (rirgham, 2008) International Accounting Standards oard states that the most common type of overhead costs includes maintenance, production expenses and salaries. It is a common practice of businesses to track their gross income and net incomes. The two figures represent different values. Gross income is usually of a larger amount and consists of all the money a particular business takes in. (International Accounting Standards oard, 2008)
The nature of business decides the type of overhead costs that a business will have to pay. Some businesses have many…...
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Bibliography:
1. Ball, Rawlins, "International Financial Reporting Standards (IFRS): pros and cons for investors." Accounting and Business Research. (2003)
2. Benninger, Lowe (1954). "Development of Cost Accounting Concepts and Principles: Role of the Committee on Cost Accounting Concepts and Standards." The Accounting Review (American Accounting Association): 27 -- 37
3. Barry J. Epstein, Eva K. Jermakowicz. Interpretation and Application of International Financial Reporting Standards (2007)
4. Cherrington, J. Owen, et al. Cost and Managerial Accounting. Dubuque, IA: Wm. C. Brown Publishers, 1985.
Postal Service (USPS) operates at a loss but its closest competitors -- UPS and FedEx -- both operate at a profit. Suggest how fixed costs have contributed to the situation of the USPS. Provide support for your response.
I would suspect that the fixed costs of contributing to employee's retirement funds (Risk Analysis Research Center, 2009, p. 4) and also their restriction from closing local offices (Slentz and McCann, 2009, p. 12) contributes to higher fixed cost at USPS than FedEx because FedEx is not unionized and while UPS is unionized, and thus experiences a fixed cost that is incurred to the level of union contracts, those contracts are more negotiable for UPS than USPS, and nonexistent or fluid for FedEx. Furthermore while union contracts probably affect the rate of closure for physical facilities for UPS, this would probably be more negotiable than for USPS and FedEx especially if…...
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Lemon Law
5. From the e-Activity, compare and contrast the lemon law in two different states and analyze which offers the best protection for the consumer. Suggest what both states could do to improve their laws. Provide support for your response.
The California and Alaska Lemon Laws are largely the same except the California law (State of California Department of Justice 2012) restricts replacement / compensation to vehicles driven under 18,000 miles within the warranty period but the Alaska law (Carlemon.com, n.d.) does not restrict the warranty period by number of miles driven. All states could benefit from a uniform definition of "reasonable attempt" to replace or refund, which depends upon, and thus also entails, a standardization
Accounting
This accounting report is intended to emphasize the importance of the role of a management accountant in business operational and financial decisions. The focus on two companies engaging in different lines of business with disparate concerns, questions, and issues provides a basis for the reader to understand specific instances in which a management accountant can play a pivotal role in the success of an enterprise. W. White Chemicals was perplexed about their loss of market share and a small drop in revenue. When the executives came together to discuss the problems, they each had a different opinion about the source of the problem and the possible solutions. The management accountant was able to demonstrate how a change from the traditional accounting system the company was using to an activity-based system would help the team interpret the market situation and get a handle on the actual, rather than the obfuscated, costs…...
iordan Manufacturing, a company that is wholly owned by iordan Industries, a Fortune 1000 enterprise specializes in the field of plastic injection molding. The business is unique due primarily to iordan extensive knowledge and expertise with plastic moldings. Innovations in plastic and its uses have created greater demand for iordan products. Namely, innovations in bottling, auto manufacturing, and National Defense have created an environment for robust growth. Its products currently include plastic beverage containers produced at its plant in Albany, Georgia, custom plastic parts produced at its plant in Pontiac, Michigan, and plastic fan parts produced at its facilities in Hangzhou, China. iordan's major customers are automotive parts manufacturers, aircraft manufacturers, the Department of Defense, beverage makers and bottlers, and appliance manufacturers.
iordan's Manufacturing Initiatives
iordan forecasts production using an average of the past three years sales. The average is used to help eliminate excessively low or high volumes of sales. In…...
1. Business Profitability: The Role of Cost Analysis
This essay examines the critical role of cost analysis in determining business profitability, exploring techniques such as cost-volume-profit analysis and break-even point calculation.
2. Revenue Optimization and Profit Enhancement
This essay investigates the strategies used to optimize revenue and increase profitability, including pricing analysis, demand forecasting, and sales performance evaluation.
3. Profitability Impact of Capital Budgeting and Investment Decisions
This essay analyzes the mathematical principles behind capital budgeting and investment decisions, highlighting the potential impact on business profitability.
4. Cash Flow Management: A Key Determinant of Profitability
This essay emphasizes the importance of cash flow management in ensuring business....
The measurement of competition within the civil aviation sector has been a focal point for numerous studies, aiming to understand market dynamics, regulatory impacts, and economic outcomes. One of the seminal works in this area is by Button and Taylor (2000), who discuss the complexities of competition in airline markets, focusing on how different metrics like the Herfindahl-Hirschman Index (HHI) can be applied to assess market concentration and competition levels. Their analysis underscores the importance of considering both route-specific and network-wide competition, highlighting the limitations of traditional metrics when applied to the aviation industry due to its unique characteristics such....
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