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Cost can be either fixed cost or variable cost. Fixed costs are the costs that are fixed in nature and do not vary with the change in scale of production. Example of fixed costs are: factory rent. Variable costs vary with the change in scale of production. Example: Raw material cost
Net Margin= Sales- Fixed cost- Variable cost
Decrease in fixed costs lead to increase in margin of an organization; keeping all other things constant.
Sometimes, benefit of decrease in fixed cost may be transferred to the consumer in the form of lower price. Lower price results in higher sales volume with lower sales margin per unit.
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∙ 12y ago
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When demand decreases and supply decreases what happens?
prices go higher
Why is fixed cost variable and variable cost fixed?
Well, you first have to look at fixed and variable costs in total as well as on a per unit basis. Fixed costs remain the constant (or fixed) in total. However, on a per unit basis they aren't constant (variable). As units produced increase (or whatever activity base) then the fixed cost per unit decreases. Fixed example: If rent is $8,000, then the total rent will still be $8,000 every month whether or not the company makes 100 products during the period or 1,000. However, using the 100 and 1,000 units as an example, the per unit cost decreases. When the company makes 100 units, the fixed cost per unit is $80 ($8,000/100 units). When the company makes 1,000 units, the fixed cost per unit is $8 ($8,000/1,000 units). The opposite applies for variable costs. Variable costs, by their nature, change with the change in units produced (or again, any other activity base the company uses, such as machine hours or labor hours). Therefore, there will be a different total for 100 units produced and 1,000 units produced. However, the unit cost never changes. Variable example: If a product that a company produces requires a certain part, this is a variable cost. Let's say the cost of the part is $10. The total variable cost for 100 units is $1,000 ($10*100 units), and for 1,000 units it's $10,000 ($10*1,000 units). However, in each case, the variable cost per unit remained at $10. Hope this is what you were looking for!
Is insurance on factory building a fixed cost?
The cost of insurance premia on factory building is recurring expenditure and to be shown on the lefthand side of the Profit & Loss A/c of the company. This not at all a fixed cost.
What is an example of a fixed cost?
Your rent might be $500 per month. It is a fixed cost. $500 per month. You can rely that every month you have to pay that fixed cost. If you have a house you bought but still pay the mortgage. The mortgage repayment may be $550 per month.
Is fixed asset a fixed cost?
A fixed asset is an item/asset that can or does generate income/revenue and its value does not flutuate in the short term. A fixed cost is an expense that is repetative such as your real estate tax and utility bills So the short answer is no. These are two different and opposite items
What happens as the level of activity decrease within the relevant range?
Although fixed cost per unit decreases with increases in activity levels, total fixed cost is not affected by changes in the activity level within the relevant range.
Is depreciation a fixed cost?
Yes it is a fixed cost. Reason being that a fixed cost remains unchanged in total as the level of activity increases or decreases. Example of fixed costs include depreciation of plant and equipment, cost of council rates and rent.
Fixed cost per unit increases when?
when number of activity or units decreases
What happens to the value of average fixed cost as the level of output increases?
The average fixed cost is equal to fixed cost divided by level of output, if the output increases; the average fixed cost is less.
What happens to NPV when cost of capital increased?
NPV decreases when the cost of capital is increased.
What happens when the cost of capital increases?
The market value of a firm's equity increases, the cost of capital decreases.
What happens to the quantity demanded for credit if the cost of borrowing increases or decreases?
As the cost of credit increases, the quantity demand decreases. in contrast, if the cost of borrowing drops, the quantity of credit demand rises.
When fixed cost decreases what does this do for the break-even point?
When fixed assets reduces it also reduces the breakeven point because now less number of units required to fulfill the fixed cost.
What happens if the price per unit decreases because of competition but the cost structure remains the same?
If the price per unit decreases because of competition but the cost structure remains the same
If the volume goes up what happens to the fixed cost and profit?
what effect does an increase in volume have on fixed cost per unit
Increase any of the fixed cost what happens to the numbers of units in the break even?
Increased in fixed cost causes the breakeven point to increase as well because now more units requires to fill the fixed cost.
Is mortgage payment a variable cost?
Mortgage payment can either be fixed or variable cost. A fixed cost means the interest rate charged on the loan will remain the same for the loan's entire term. A variable cost means the interest rate changes or decreases as time pass.
