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Decomposing Total Costs as Fixed Costs plus Variable Costs.

In cost accounting, a part of management accounting, fixed costs are expenses that do not change in proportion to the activity of a business, within the relevant period or scale of production. For example, a retailer must pay rent and utility bills irrespective of sales. Unit fixed costs, called average fixed costs (AFC), decline with volume, following a rectangular hyperbola as the inverse of the volume of production: AFC = FC/N. Fixed costs are un-expired assets or expenses whose total does not change in proportion to the activity of a business, within the relevant time period or scale of production. ... Variable costs or direct costs are expenses that change in direct proportion to the activity of a business. ... This article does not cite any references or sources. ... Management accounting is concerned with the provisions and use of accounting information to managers within organizations, to provide them with the basis in making informed business decisions that would allow them to be better equipped in their management and control functions. ... In accounting, an expense is a general term for an outgoing payment made by a business or individual. ... Drawing of a self-service store. ...

Variable costs by contrast change in relation to the activity of a business such as sales or production volume. In the example of the retailer, variable costs may primarily be composed of inventory (goods purchased for sale), and the cost of goods is therefore almost entirely variable. In manufacturing, direct material costs are an example of a variable cost. An example of variable costs are the prices of the supplies needed to produce a product. Variable costs or direct costs are expenses that change in direct proportion to the activity of a business. ... Inventory is a list of goods and materials, or those goods and materials themselves, held available in stock by a business. ... Good. ...

Along with variable costs, fixed costs make up one of the two components of total cost. In the most simple production function, total cost is equal to fixed costs plus variable costs. Variable costs or direct costs are expenses that change in direct proportion to the activity of a business. ... This page is a candidate for speedy deletion, because: it does not contain meaningful content If you disagree with its speedy deletion, please explain why on its talk page or at Wikipedia:Speedy deletions. ... In microeconomics, a production function expresses the relationship between an organizations inputs and its outputs. ...

In microeconomics and business, the difference between fixed costs and variable costs (and the related terms average cost and marginal cost) is crucial, as each will influence production decisions for profit maximization differently. In the most simple cases, fixed costs do not affect production decisions, because they cannot be changed, and management will choose to produce if sales prices are above the cost of each additional unit (marginal cost). Microeconomics (or price theory) is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources,[1] typically in markets where goods or services are being bought and sold. ... Marginal cost is a term in economics. ... In economics and finance, marginal cost is the change in total cost that arises when the quantity produced changes by one unit. ... In economics, profit maximization is the process by which a firm determines the price and output level that returns the greatest profit. ...

Fixed costs should not be confused with sunk costs. From a pure economics perspective, fixed costs may not be fixed in the sense of invariate; they may change, but are fixed in relation to the quantity of production for the relevant period. For example, a company may have unexpected and unpredictable expenses unrelated to production, and these would not be considered part of variable costs. It has been suggested that Bygones principle be merged into this article or section. ...

It is important to understand that fixed costs are "fixed" only within a certain range of activity or over a certain period of time. If enough time passes, all costs become variable. Similarly, not all indirect costs are fixed costs; for example, advertising expenses or labour costs are indirect costs that are variable over a slightly longer time frame, as they may not be subject to change in the short term, but may be easily adjustable over a longer time frame. For example, a firm may not be able to vary the number of employees (and hence labour costs) in the short term due to contract obligations, but be able to lay employees off or otherwise change these costs.

In accounting terminology, fixed costs will broadly include all costs (expenses) which are not included in cost of goods sold, and variable costs are those captured in costs of goods sold. The implicit assumption required to make the equivalence between the accounting and economics terminology is that the accounting period is equal to the period in which fixed costs do not vary in relation to production. In practice, this equivalence does not always hold, and depending on the period under consideration by management, some overhead expenses (such as sales, general and administrative expenses) can be adjusted by management, and the specific allocation of each expense to each category will be decided under cost accounting. In accounting, the cost of goods sold (also, cost of sales or cost of revenue) describes the direct expenses incurred in producing a particular good for sale, including the actual cost of materials that comprise the good, and direct labor expense in putting the good in salable condition. ... This article does not cite any references or sources. ...

In business planning and management accounting, usage of the terms fixed costs, variable costs and others will often differ from usage in economics, and may depend on the intended use. For example, costs may be segregated into per unit costs (costs of goods sold), fixed costs per period, and variable costs as a proportion of revenue. Capital expenditures will usually be allocated separately, and depending on the purpose, a portion may be regularly allocated to expenses as depreciation and amortization and seen as a fixed cost per period, or the entire amount may be considered upfront fixed costs. Declining-balance depreciation of a $50,000 asset with $6,500 salvage value over 20 years. ... Look up amortise in Wiktionary, the free dictionary. ...

See also

• Contribution margin
• Cost
• Cost-Volume-Profit Analysis
• Cost accounting
• Cost curve
• Cost overrun
• Flat rate (Linear rate, flat fee)
• Semi variable cost
• Total cost