Variable Costs

Management Accounting

Managerial Accounting and Organizational Controls
American InterContinental University


The first question in the Individual Project was to identify which item is fixed and which one is the variable. I believe that the variable cost is the total annual cost which is $650 and the fixed cost is the Building rent cost which always stays at $9000. The reason that the fixed cost item stays at $9000 is that it would not matter how many units we make the rent will not change.
In the case that our sales are at 1000 units our variable cost is $650; the variable cost per unit is $0.65; the fixed cost is $9000; with the fixed cost per unit being $9.00. The total cost would be $9650 and the total cost per unit would be $9.65.
If we increase the sales volume to $6000 units then total annual cost would rise to $12900 and the unit cost of fixed costs would go to $3900 and the variable cost per unit stays at $0.65 and the fixed cost per unit would be $1.50; making the total cost per unit $2.15.
In the case that we increase our sales to $8000 units then the total annual cost would rise to $14200 and the fixed unit cost would go to $5200 and the variable cost per unit would stay at $0.65 and the fixed cost per unit would be $1.13; making the total cost per unit $1.78.
| 1000 units | 6000 units | 8000 units |
Variable cost | $650 | $3900 | $5200 |
Variable cost per unit | $0.65 | $0.65 | $0.65 |
Fixed Cost | $9000 | $9000 | $9000 |
Fixed cost per unit | $9.00 | $1.50 | $1.13 |
Total Cost | $9650 | $12900 | $14200 |
Total Cost per unit | $9.65 | $2.15 | $1.78 |

References
Burgstahler. D., Horngren, C.,   Schatzberg, J., Stratton, W.,   & Sundem, G., (2008)
Introduction to Management Accounting (14 ed.). Upper Saddle River, NJ: Prentice Hall [continues]

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