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Costing: Mixed, Fixed, and Variable Cost Structures
Ayesha N. Everett, Shalonda Piper, Shatyra Frazier
June 23, 2016
Cost: Mixed, Fixed, and Variable Cost Structures
Costing is the machinery that will allow for the enterprise to continuously establish valuation through the analysis of elasticity and inelasticity of the various economic domains – mezzo economics, microeconomics, and macroeconomics. Knowledge of this nature will illustrate the cost behavior that will apply to all areas of costing. Cost behavior analysis, will interpret how various business activities, affect the changes of these domains of pricing. The activities index will allow for the classification of the behavior change of the costing mechanisms. The measurement of the core competencies of the firm will allow for the establishment of either Mixed, Variable, or Fixed Costing methodologies.
Variable Cost tend to fluctuate in total, or in the proportion of the activity level of production. In conjunction, with the law of supply, which according to Investopedia states, “The law of supply is the microeconomic law that confers that all other factors being equal, as the price of a good or service increases, the quantity of goods or services that suppliers offer will increase, and vice versa.” (Investopedia, 2016). The dynamic of the correlation of these two important economic theories will allow for the appropriate costing levels of the products and services for offer. Further, a variable cost is adjudicated through the per unit cost that will remain the same at every level of activity. In opposition of this particular costing process is the fixed cost theorem.
Fixed Cost and Mixed Cost
The Law of Demand states that as the price of a good shift the demand for the product or service will operate inversely. In conjunction with this theory is the operation of insurance premiums, which is a great fixed cost that adheres to this machinery. The rate is the same monthly or annually, until the policy has been reviewed at the desired time and warrants an increase or decrease of cost. According to Investopedia, The law of demand is a microeconomic law that states, all other factors being equal, as the price of a good or service increases, consumer demand for the good or service will decrease, and vice versa. The law of demand implies that the higher the price, the lower the quantity demanded, for the very reason of the consumers' opportunity cost to acquire that good or service increases, and they must make more tradeoffs to acquire the more expensive product." (Investopedia, 2016). For example: This type of cost is reflective in the lease of an enterprises long term capital. Regardless of how much money the company earns, the cost of renting a building will remain the same; telescopically, fixed cost, which remains the same, no matter of the change of activity will illustrate how the per unit cost varies inversely with a spur of activity. In conjunction, with the prior two costing systems mixed costing takes on another approach.
Mixed Cost are comprehensive of both variable and fixed cost methodologies; telescopically, the idiosyncracies of this domain will change in total, but not proportionately with a change in activity. Attorneys implement the mixed cost strategy, they charge a flat rate as a retainer fee, while allotting a billable hour’s schedule to compensate the mixed cost. The analyst will have to discover the cost driver that will inspire the fluctuation of activity change. Activity Based Costing will discrete these elements into various cost pools, which express the terms of sales either in dollars, miles driven, or units sold. The Break-Even analysis and equation are conspicuous in the illustration of one product; however, the concept becomes ambiguous relative to the correlation of multiple products. The break-even analysis can be used to determine the prices of goods and services, and whether or not the entry into a new market would be profitable.
In the segment of Managerial Accounting will these factors have an exponential effect in the financial planning and forecasting of the company. The various elements that will allow for the establishment of pricing will allow for the maximization of profitability, as well as, production. Activities Based Costing will allow for the company to operate more cost-efficiently. Through this ideology of precision will the operation afford to allocate revenue to more productive segments of the enterprise. Under the process of Traditional Costing will the operative allocate standard cost to the various cost pools that will allow for the overhead cost to have a foundation based on the volume of the cost driver. With respects to the rudimentary elements of the Law of Supply and Demand will these thermos allow for the accomplishment of established monetary monitoring of the enterprise.
Investopedia. (2016). Law of Demand. Retrieved from http://http://www.investopedia.com/terms/l/lawofdemand.asp
Investopedia. (2016). Law of Supply. Retrieved from http://http://www.investopedia.com/terms/l/lawofsupply.asp
Running head: COSTING: MIXED, FIXED, AND VARIABLE COST STRUCTURES
FoundationCOST: MIXED, FIXED, AND VARIABLE COST STRUCTURES
5ncreases, the quantity of goods or services that suppliers offer will increase, and vice versa.” (Investopedia, 2016). The dynamic of the correlation of these two important economic theories will allow for the appropriate costing levels of the products and services for offer. Further, a variable cost is adjudicated through the per unit cost that will remain the same at every level of activity. In opposition of this particular costing process is the fixed cost theorem.
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