Fixed or Variable Cost Essay -- cost, business,

Cost can be divided into fixed and variable and by considering into fact that fixed and variable cost can be unarguably split into two, even though they behave differently based on the level of sales of volumes. Since, cost is used in every field to determine the price of an item and the unit sold. Two of the main components of cost are fixed and variable cost and is used to differentiate between the costs that have no direct correlation to business and those that do. Definition:- Fixed cost is not affected by the changes in the sales, they have slight relationship to the business and they do not change considerably when the sale increase or decrease. Fixed cost is set for particular period of time and changes occur during the specific time. Since, fixed cost does not change directly some of the examples of fixed cost are insurance premium, real estate taxes etc. For example, ‘an increase in the cost of insurance premiums may be attributable to an insurance company’s perception of increased risk associated with higher volume. Even though the increase in insurance cost is somehow related to an increase in volume, the cost of insurance is still considered a fixed cost’ (Tiffin, 2007). Other component of cost is variable cost changes frequently do not haves specific set period. Variable costs can be aptly defined as," which increase directly in proportion to the level of sales in dollars or units sold†. Depending on the type of busines s, some examples would be cost of goods sold, sales commissions, shipping charges, delivery charges, and costs of direct materials or supplies, wages of part-time or temporary employees, and sales or production bonuses. Both fixed and variable cost elements are components of mixed or semi-vari... ...the equation for a straight line as follows: Y = $3,400 + $0.80X Hence the above example shows that costs can be determined as either fixed or variable even in a semi variable cost. In conclusion cost can be divided into two to find the exact amount of sale of an item sold and purchased by the customer. All fixed cost can be variable cost since, variable cost change often. Reference †¢ Tiffin, R., (2007) Finance and Accounting Desktop Guide: Accounting Literacy for the Non-financial Manager 2nd ed., London Thorogood. †¢ Hansen, D., Mowen, M., & Guan, L., Cost Management: Accounting & Control 6th ed., Mason, Ohio: South-Western †¢ Dittmer, P. & Keefe, D., (2009) Principles of Food, Beverage and Labor Cost Controls 9th ed., Hoboken, N.J John Wiley & Sons, Inc. (US). †¢ Weetman, P. (2006) Management Accounting, FT/Prentice Hall (Pearson Education)