Question

A company in the process industry produces a chemical compound that is sold to manufacturers for use in the production of certain plastic products. The plant that produces the compound employs approximately 300 people. Develop a list of six different cost elements that would be fixed and a similar list of six cost elements that would be variable

Answer 1

Fixed cost is the cost which a company incurs which doesn't get affected with the change in output. Thus, the fixed cost beared by the company would be:

1. Depreciation: Depreciation is a fixed cost on the asset as it doesn't change with the change in output.

2. Salaries: The fixed part of the salary is always a fixed cost.

3. Rent: The rent of the plant goes and it doesn't get affected with the output.

4. Property Taxes: The taxes are also paid for the location which doesn't gets affected with the output.

5. Insurance: The insurance of the assets are also a fixed part which goes yearly or monthly.

6. Interest Expenses: At last, the interest you are paying for the debentures or loans you took are also a fixed cost.

Variable costs on the other hand refers to the cost which the company incurs and it changes with the change in output. Thus, the variable cost beared by the company would be:

1. Direct Material: Direct material changes as the output increase or decrease.

2. Production Supplies: The production supplies also changes depending upon the level of output.

3. Variable pay to labour: Apart from the fixed pay, the variable pay is the extra bonus you give to your workers because of their level of productivity.

4. Freight out: The charges you pay for your goods to be delivered to your customers depends upon the level of output.

5. Commissions: The commission you pay to your agent or your people for finding the right customers and deals to be paid off.

6. Credit card fees: At last, the fees you pay off pn your credit card also depends upon how much you have spent varying with your output.