Question

Sometimes the determination of whether something is considered variable or fixed is dependent on position and viewpoint. For example, take a multiple location retail establishment. If viewing something like the general manager’s compensation from the store perspective, such compensation would be fixed. However, the same compensation, when viewed by the home office as just one element of the store, can be considered variable (along with all other revenue/expense items in that particular store location).

  

Please provide other examples of such situations where the perspective of the viewer would determine the categorization of the cost as being fixed or variable.

Answer 1

Solution:

The example given in question is a fixed cost, not a variable cost. General manager compensation is a fixed cost for the company. Variable cost are the cost that changes with change in every unit that company produce. Variable cost is always remain constant per unit basis. General manager compensation is a fixed cost, if company vary its production quantity this cost cannot be changed.

Yes, from the prospective Store as allocation base, this is variable on per store basis. Generally we called these costs as treaceable fixed cost for division/Segment. Traceable fixed costs are the cost that is incurred in a particular segment and if take decision to close any division or segmant, these traceable cost could also eliminated.

The other example of such costs are Store rent, Store property taxes, Store incharge salary etc. These costs are fixed, however variable from the prospective of per store basis.