Question

Select a company of your choice and select 3 accounts you would classify as variable and 3 accounts you would classify as fixed costs. Based on your research, why would you classify the accounts this way and what is the effect on income?

include refernces please.

Answer 1

The following table shows various costs incurred by a manufacturing company:

Cost Variable Fixed Depreciation of executive jet Cost of shipping finished goods to customers Wood used in manufacturing furniture Sales manager's salary Electricity used in manufacturing furniture Packing supplies for shipping products Sand used in manufacturing concrete Supervisor's salary Advertising costs Executive's life insurance

Variable Cost Fixed Cost Definition Costs that vary/change depending Costs that do not change in on the company's production relation to production volume volume Total variable costs increase Total fixed cost stays the When Production same Increases Total variable costs decrease Total fixed cost stays the When Production Decreases same Examples Rent Direct Materials (i.e. kilograms of wood, tons of cement) Direct Labor (i.e. labor hours) Advertising Insurance Depreciation
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• The difference in variable and fixed costs is classified in order to make decisions about further production.
• The variable costs as it varies with the no. Of units produced, affects income of the company. However, fixed costs as does not vary and are committed costs to the company, does not affect its decision making.