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Variable costs and Fixed Costs - Coggle Diagram
Variable costs and Fixed Costs
Understanding
An expense that changes in proportion to how much sales' company
Rise as production increases, and drop as production decline
viewed as short-term costs as they can be adjusted quickly
Formula: Total Quantity of Output x Variable Cost Per Unit of Output
Types
Labour Costs
Commissions: percentage of sales of a sales' proceeds that are awarded to a company as a compensation
Raw materials
Utilities: the worth or value of a good or service
Shipping/freight
Importance
Integral part of budgeting and planning
determine the break-even point
Determine pricing
Impact a company's expense structure
Determine margins and net income
VS
Fixed Costs
Remain the same regardless sales decrease or increase. The company has to pay it even if the sales was 0
Example: Rent cost, Employees Salary, Insurance
Average costs
Variable costs is usually used to describe a single products
Average costs analyse production over time and compares variable costs to what has been produced
Formula: Total Variable Costs / Total Output