Question

Apply variable costs into these questions below. MINIMUM 200 words ONLY!

• Describe a situation where variable costs are applied outside the classroom. In your career? Your personal life? A current event? Another class?

• Did you describe variable costs in a few sentences with enough detail to indicate that you understand the concept?

• Does the topic you described relate to the situation or incident that you described? (For example, do not describe the IMA Statement of Ethics, then explain how you walked into Best Buy and immediately saw a service company, the Geek Squad, a retail operation with electronics for sale, and manufacturing operations as Sony, Toshiba, and LG products are all lined up for sale. A better choice would be to describe the accounting differences between the types of businesses, then describe what you saw when you walked into Best Buy.)

Answer 1

Application of variable cost:

In Career:

The cost of travel to office daily is a variable cost. The cost is incurred only when travelled to office. The variable cost is miles travelled multiplied cost per mileage based on fuel price

In Personal life

The cost of grocery purchased for personal needs in home is a variable cost. It varies directly in relation to consumption of the items. Hence it is a variable cost

A current event

The cost of snacks/meals in a birthday party is a variable cost. It varies based on the number of visitors and hence it is a variable cost

Another class:

The cost of stationary like pen, pencil, note books, etc used in the classes is a variable cost. The cost directly varies with usage of stationary for education purpose.

Description of variable cost:

· Variable cost is constant at per unit level.

· Variable cost increase or decreases with change in activity level : for example sales commission will vary depending on the units sold

· Variable cost changes in total only. Increase in production and sales increases total variable cost and decrease in production and sales decreases total variable cost.

· Variable cost has a direct impact on profitablity for example: increase in variable cost increases the cost per unit and margin is reduced.