Just need a response thank you! Define variable costs and fixed costs, and use an example...

Just need a response thank you!

Define variable costs and fixed costs, and use an example for each. Are these cost classifications in any way related to direct and indirect costs? Why are these cost classifications important in managerial accounting?

Expert Solution

Variable Costs : Variable costs are those costs which increases with the increase in production. Variable cost are directly related with the production level. Higher the production level, higher the variable costs vice versa e.g. direct material, direct labour etc.

Fixed cost : fixed costs are those cost which remains constant whether the production level increses or not. Fixed cost are not directly related with the production level. company has to bear fixed cost whether company produces a product or not. e.g. Rent of factory etc.

These cost classifications are important in managerial accounting. it helps the management in controlling cost of product effectively. fixed cost are generally contolled only by top management where variable cost is controlled by lower level management. by these classification company easily find out their break even point & marginal cost

fixed cost are generally related to indirect cost and these cost generally distributed over product on the basis of effective predetermined rate. where as variable cost are generally direct cost there is no need to distribute this cost because these cost already allocated.

ekkarill92 answered 1 week ago

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