Variable Costs and Fixed Costs in Business

Document Type:Coursework

Subject Area:Accounting

Document 1

A change in output also changes the variable costs implying for every produced good, the variable costs increase by the same amount (Briciu, 2008). Some variable costs include; direct materials which go into product, piece rate labor paid for every completed unit, production supplies such as machinery oil, billable staff wages, commissions, credit card fees and freight out in shipping. Fixed costs do not change when output changes and such costs include rent, setup costs, insurance, normal profit and depreciation (Accountingtools. com, 2017). In business, costs are classified based on usefulness in decision-making as relevant costs and irrelevant costs. The paper requires a determination on whether given fixed costs are irrelevant; companies should always make and sell all products whose selling prices exceed variable costs.

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