FIXED AND VARIABLE COST

Fixed and Variable Cost

Variable cost is a cost that changes in proportion to a change in a company 's activity or business , while a fixed cost is cost that remains constant , regardless of any change in a company 's activity

In the given case Raw Materials would be variable cost , as it changes with a change of the volume of raw materials . Therefore the for Raw Materials is variable , but the per-unit cost is fixed . The more units the company purchases the higher RM cost

Raw Materials :Number of units 1000 p

Cost per unit 0 .65

Rent Expense in this case is a fixed cost . Regardless of the companies operation (if it increases or decreases sales volume or even discontinues to operate ) the rent expense will remain the same Therefore , the variable . The cost per unit will decrease if a company sells more product

Building Rent :Number of units 1000

Cost per unit 9

In the case of increased sales the variable cost (Raw materials ) will go up , while RM cost per unit will remain the same . Fixed cost for rent will remain the same , however , the per-unit cost for rent will decrease RM Rent RM Rent Cost per unit 0 .65 1 .5 0 .65 1 .13 External Uses of Accounting and Managerial Accounting

The users of financial information can be classified as either external or internal decision makers . External decision makers are people who lack direct access to the information generated by the internal operations of a company . Included in this category are present shareholders , potential investors , suppliers , creditors , rank-and- employees , customers , competitors , financial analysts and advisors brokers , under , the stock exchanges , lawyers , economists , taxing and regulatory authorities , legislators , the financial press and reporting agencies , labor unions , trade associations , business researchers , teachers , students , and the public . These external decision makers use accounting information in deciding on matters such as whether to invest in the entity , extend it credit , or even do business with it External users , because of their detachment from the entity , typically are not in a position to demand specific financial information from the entity therefore , they must rely on general-purpose financial statements . To meet the information needs of external decision makers the accounting profession has developed a network of accounting concepts , principles , and procedures intended to assure that external financial statements are relevant and reliable (GAAP

Internal decision makers are the managers of an entity . They are responsible for planning the future of the business , implementing those plans , controlling daily operations , and reporting information to other operating officers . Because of their close and direct relationship with the business , internal decision makers usually can obtain whatever financial data they need at dates of their choice . Much of this information is not intended to be relayed to outsiders . The process of developing and reporting financial information for internal users is called management accounting , and the related information reports being generated are called internal management reports . Because of the confidential nature of these reports and their primary...