How to calculate fixed cost and variable cost?
Answers
Answered by
2
1--Fixed Costs
Fixed costs are those expenses that do not vary with the volume of production and cannot be easily changed in a short-run. These expenses must be paid at all times and all levels of production, even if sales are zero. The data below shows how to find the fixed costs for The Hasty Rabbitt Corporation:
Rent for office building: $36,000
Rent for warehouse and assembly buildings: $60,000
Salaries for office personnel: $75,000
Utilities for office and Plant: $48,000
Insurance: $8,000
Interest on loans: $7,000
Salary for general manager: $80,000
Licenses and permits: $4,000
Telephone: $9,000
Property taxes: $5,500
Website and internet: $3,500
Total fixed costs: $336,000
2-- Variable Costs
Variable costs change with the level of production and mostly consist of the raw materials and direct labor involved in manufacturing. Hasty Rabbit has found a winner design for its sneaker and only has to sell one model, the Blazing Hare. Consumers see these sneakers as premium and are willing to pay $75 per pair.
The costs of production for each pair of Blazing Hare sneakers is as follows:
Materials for upper, cushion and sole: $18
Direct labor of manufacturing: $20
Production supplies: $4
Freight out: $3
Total variable costs of production for each pair: $45
Fixed costs are those expenses that do not vary with the volume of production and cannot be easily changed in a short-run. These expenses must be paid at all times and all levels of production, even if sales are zero. The data below shows how to find the fixed costs for The Hasty Rabbitt Corporation:
Rent for office building: $36,000
Rent for warehouse and assembly buildings: $60,000
Salaries for office personnel: $75,000
Utilities for office and Plant: $48,000
Insurance: $8,000
Interest on loans: $7,000
Salary for general manager: $80,000
Licenses and permits: $4,000
Telephone: $9,000
Property taxes: $5,500
Website and internet: $3,500
Total fixed costs: $336,000
2-- Variable Costs
Variable costs change with the level of production and mostly consist of the raw materials and direct labor involved in manufacturing. Hasty Rabbit has found a winner design for its sneaker and only has to sell one model, the Blazing Hare. Consumers see these sneakers as premium and are willing to pay $75 per pair.
The costs of production for each pair of Blazing Hare sneakers is as follows:
Materials for upper, cushion and sole: $18
Direct labor of manufacturing: $20
Production supplies: $4
Freight out: $3
Total variable costs of production for each pair: $45
Similar questions