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Managerial accounting and cost methods. Fixed and Variable (Semi-variable or mixed costs)

Discuss the differences between fixed, mixed and variable costs by provide two examples of each type of cost as they relate to a company you have worked for in the past, currently work for, or plan to work for in the future. Why do you think it important for managers of this organization to understand the differences in these costs (be sure to provide a specific related example)?

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Answer 1

Managerial Accounting It is also known as Management Accounting. It is the provision of financial and non finanacial decision making information to the managers. Management accounting will help the manager to aid their management and perfomance of control function. It also help the manager of a company to take decisions. There is a managerial accountant to make this accounting. For helping supervisors for accomplishing business goals managerial accounting will distinguish, examine, decipher and impart data. Through the information gathered it will educate the administration about business tasks and decisions made by the organisation. If we look the role of managerial accounting in a company it will manage the business group and want to report relationships and responsibilitiesto the corporations finance organisation.

Fixed Cost It is also known as indirect cost or overheads. Fixed costs are business expenses that are not depend on the level of goods and services produced by the business. This cost is always fixed eventhough there is no production in the business. Fixed cost is related to time, because it is compulsary to pay certain amount by the company in a particular time. Example of fixed costs includes rent payment, insurance, property taxes, depreciation etc..

Variable Cost It is also known as prime cost. Variable costs are business expenses that are depend on the level of goods and services produced by the bussiness.Variable costs are volume related and change with the change in output level. It will change according to the change in production. Variable cost are the sum of marginal costs over all units produced. No all variable costs are direct cost. Variable costs are some time called unit level costs as they vary with the number of units produced. Variable costs is influenced by many factors such as fixed cost, discount rate, uncertainty etc.. Example of variable cost includes cost of raw materials, utility costs, sales commissions etc..

Mixed Cost It is the mixture of fixed and variable cost. It contains the components of fived and variable costs. Mixed cost is related to the scale of production within the business where there is a fixed cost which remains constant across all scales of production whilst the variable cost increases proportionally to production levels. Eg. telephone expense, fixed component - cost of the system,   variable component - cost of calls.

It is very important for the manager to know the difference between these costs. Because it is providing overall cost structure of the business. Through understanding the difference between variable and fixed cost it will help the management to make rational decisions about the business expenses which has a direct impact on profitability. It will help the management to find the difference between the income and expenditure of the company. Like that it will help to control the amount of cost incured by the business.