Costs can be classified into two categories, fixed and variable costs. These costs behave differently based on the level of sales volumes. Suppose we are running a restaurant and have identified certain costs along with the number of annual units sold of 1000.
Item: Raw Materials (cost for hamburgers)
Total Annual Cost: 650
Item: Building Rent
Total Annual Cost: 9000
Identify which cost item above is fixed and variable and why? What is the cost per unit of each? Suppose we increased our sales volume to 6000 units and then to 8000 units the following year (and are still within the relevant range), what would be the total annual cost and unit cost of fixed and variable costs?
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Discuss the role of the financial accounting and managerial accounting functions in organizations and some of their job responsibilities. What are some of the differences between the two and the type of reports they may each use?© BrainMass Inc. brainmass.com October 9, 2019, 10:58 pm ad1c9bdddf
The Response Addresses the Queries Posted in 465 Words, APA References
The Response Addresses the Queries Posted in 503 Words, APA References
//Before moving to the second part of the instructions, initially, we have to interpret about the Cost and its categories, so that we can easily differentiate between the Fixed Cost and the Variable Cost. So, first of all, we will discuss about the cost and cost classification under the heading of Introduction, for example: //
Cost is defined as the value of the economical resources that is utilized as a consequence of producing or doing the thing, costed. Moreover, the cost may be fixed cost, variable cost, direct cost, indirect cost, job cost, etc. The purpose of each cost is entirely different from each other. 'Fixed Costs' are defined as those cost that are fixed in nature, for a certain item. It means that it cannot change with the different levels of output. In other words, it is the cost that always stays same for different output levels; while, the 'Variable Cost' is defined as the cost that varies according to the variations in the total output (Fixed and Variable Costs).
//Above we have discussed about the Cost and its Classification. Now, as per instructions, we will talk about the above cost items, in order to find out which item is fixed and variable. In this, we will also analyze the reason behind this. //
According to the above data, the item of the cost of raw material is the variable cost because this item changes with the deviation in the level of sales volume. The item of the cost of building rent is conceived as the 'fixed cost' because it cannot change with the changes in level of output. It simply indicates that if the restaurant changes the sales volume i.e. 1000 units or 6000 or 8000 units, it have to give only $9000 as building rent.
//After identifying the above fixed and variable cost items; moving to next part of directions, we will show the calculate value of the cost per unit, of each item given. Besides that, we will also talk about the changes in the total annual cost and unit cost of fixed and variable costs due to the changed sales volume.//
Cost variation under different sales volume
If the company annual sales volume is 1000 units, variable cost per unit is $0.65, and fixed cost is $9000, then in this case, the calculated cost per unit for the restaurant is $9.65 per unit.
If the company increases its sales volume to 6000 units, then in this situation, its total annual cost is 12900 and unit cost of fixed and variable costs is 1.5 and 0.65, respectively. This shows that in ...
The Response Addresses the Queries Posted in 950 Words, APA References