Finance/ Accounting question
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1. What are some examples of fixed and variable costs from your workplace? Which costs may have both variable and fixed components? How can this be resolved for analysis purposes?
2. When is it appropriate for companies to use activity-based costing? How might activity-based costing be used in your company? What are some differences between ABC and traditional costing?
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This solution is comprised of a detailed explanation to answer what are some examples of fixed and variable costs from your workplace.
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Variable costs are those costs " which increase directly in proportion to the level of sales in dollars or units sold. Depending on your type of business, some examples would be cost of goods sold, sales commissions, shipping charges, delivery charges, costs of direct materials or supplies, wages of part-time or temporary employees, and sales or production bonuses.
"Fixed costs," which remain the same regardless of your level of sales. Depending on your type of business, some typical examples would be rent, interest on debt, insurance, plant and equipment expenses, business licenses, and salary of permanent full-time workers.
Useful in decision making
By knowing the cost nature one can use it to take various decisions such as:
Break-even analysis is one of the tools of the managerial accounting, a device for determining the point at which sales will just cover total costs.
or the break even point for a product is the point where total revenue received equals total costs (TR=TC). A break even point is typically calculated in order to determine if it would be worthwhile to sell a proposed product, or to try to figure out whether an existing product can be made profitable. If a firm's costs were all variable, the problem of break-even volume would never arise. By having some variable and some fixed costs, the firm must suffer losses up to a given volume.
This figure can be used to make advantageous decisions concerning rates, prices, effect on operating costs and profits. Break-even analysis is especially useful when considering volume and plant expansion. If the firm is to avoid losses, its sales must cover all costs?those that vary directly with production and those that do not change as production levels change.
Knowing the consequences of alternative prices
This analysis is also useful in comparing the consequences of alternative prices. By inserting different prices into the formula, you will obtain a number of break even points, one for each possible price charged.
Thus it seeks to provide answers to the following ...
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