Should be no less than 100 words each. References should include a scholarly source outside your textbook. References and citations are required for your response posts.
Re: Cost Behavior – from Jimenez, Shany, posted 05/12/2021 07:45 PM CDT
The cost behavior consists of main categories distinguished based on behavior: mixed cost fixed and variable cost ( Freedman,2016). Most organizations contain mixed, fixed, and variables behaviors (Freedman, 2016). Regardless of the activity level, the fixed cost expenses remain constant; they do not change ( Irfan Ullah,2019). Even though no units are being produced, the cost will be incurred ( Freedman, 2016). Examples of fixed costs are employee salaries, rent, loan payments, straight-line depreciation expense, telephone, internet costs and insurance (FreshBooks. (2020). For example, if your business is not doing well and temporarily close your business, you must still pay for the overhead expenses, rent, and insurance ( FreshBooks. (2020). Since the fixed cost are not related to volume or operations, they are less controllable, and they are also able to be budgeted easier than variable costs ( FreshBooks, 2020). On the other hand, the variable costs do change; they change directly based on the business activity level /volume ( FreshBooks, 2020 ). when the variable cost increases due to the production of units and when there are less units produced, the variable costs decrease ( FreshBooks, 2020). The variable costs are harder to monitor and control because they’re constantly changing, which causes their expenses to change month to month ( Irfan Ullah, 2019 ). Examples of variable costs are commission, direct labor, taxes, and Operational expenses ( FreshBooks, 2020). A typical example of variable costs is operational expenses. The operational expenses such as electricity or gas may increase or decrease based on the t business activity. Lastly, the mixed costs are precisely what it sounds like; it is a mixture of both variable and fixed costs ( FreshBooks. (2020 ). The mixed costs are also known as semi-variables that utilize regression analysis, scatter graph method, and high-low methods behavior analysis techniques ( Irfan Ullah, 2019). An example of mixed costs is telephone expenses ( Irfan Ullah, 2019). The telephone line has a monthly rent and consists of fixed costs, and the variable costs are the charges charged per minute ( FreshBooks, 2020).
References
Freedman, J. (2016, October 26). Functional Based Cost Accounting Basics. Small Business – Chron.com. https://smallbusiness.chron.com/functional-based-cost-accounting-
basics-51647.html.
irfanullah, jan. (2019). Types of Costs by Behavior. https://xplaind.com/552306/cost-
behavior#:~:text=Cost%20behavior%20refers%20to%20the,are%20a%20combination%20of%20both.
FreshBooks. (2020, July 20). The Difference Between Fixed Cost and Variable Cost – Explained. FreshBooks. https://www.freshbooks.com/hub/accounting/fixed-co…
-cost.
At some point in our personal and professional lives we have all encountered cost dilemmas that have compelled us to consider cost behavior to determine our course of action. We frequently encounter instances in which we have to calculate various types of cost behavior by determining how total cost will change as a result of a change in volume or activity (Edmonds, 2020). Similarly, businesses have to consider how the cost of a product, service, or their operating cost would change based upon changes in the amount of items produced, sold, or employees needed to support customers post sale. Subsequently, businesses expect leaders and accountants to calculate and monitor fixed cost behavior, variable cost behavior, and mixed cost behavior.
One of the benefits of items that demonstrate fixed cost behavior is it enables businesses to accurately predict total costs, given the total cost of a product or service does not change with an increase or decrease in sales. For example, if a business decided to purchase a booth at an industry trade show to market their products. The cost the business would pay the trade show organizer for the booth would remain static, regardless of the number of customers they interact with at the trade show. Moreover, the customer who attends the trade show also demonstrates fixed cost behavior, given their cost of admission does not fluctuate based on the number of vendor booths they visit (Havlíková & Koláová, 2015).
Conversely, since the cost of booths at industry trade shows are often dictated by the number of square feet the vendor’s booth will occupy on the trade show floor. This type of cost structure is an example of variable cost behavior due to the total cost of the booth would increase or decrease based on the number of square feet the vendor rents from the trade show organizers (Porporato, 2016). Additionally, businesses may also encounter fee structures at trade shows that demonstrate mixed costs behavior since a portion of the costs are fixed and portion of the costs are variable. For example, the cost a vendor pays for their booth is variable based on the amount of square feet they rent on the trade room floor. However, if they choose to be a featured vendor during the trade show, the vendor would pay the trade show organizers an additional fixed fee to be listed as a featured vendor on trade show advertisements. Consequently, fixed, variable, and mixed costs must be monitored by a business given they all can have a different impact on the business’ ability to predict and achieve profitable outcomes (Edmonds, 2020).
References
Edmonds, T. (2020). Fundamental Managerial Accounting Concepts (9th ed.). McGraw Hill
Havlíková, M., & Koláová, A. (2015). Why Do Agricultural Producers Exhibit at Bread Basket? Agris On-Line Papers in Economics & Informatics, 7(4), 49–56. https://doi-org.bethelu.idm.oclc.org/10.7160/aol.2015.070405
Porporato, M. M. (2016). Logistics Costs Behavior and Management in the Auto Industry. Issues in Accounting Education, 31(4), 389–408. https://doi-org.bethelu.idm.oclc.org/10.2308/iace-51171
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