# Variable or Fixed Cost

**Topics:**Costs, Variable cost, Management accounting

**Pages:**2 (363 words)

**Published:**November 28, 2007

The given information is that company ABC produces 1000 hamburgers annually. To produce this amount they spend $650 in raw materials (hamburger) and the rent for the production facility is $9000 annually. With this information we can calculate the amount of raw material needed to produce one single hamburger $0.65. Using this we can calculate expected costs if production increases. For 6000 hamburgers annually the cost of raw materials is $3900 while at 8000 hamburgers it is $5200. Since the facility rent is unchanged with respect to the number of hamburgers. It's per unit cost decreases respectively. 6000 hamburgers is $1.50 per unit and at 8000 it is $1.13. Where as in the beginning the rent overhead is $9.00 per unit.

To produce 6000 hamburgers annually there would be $9000 in fixed rent costs plus $3900 in raw materials, totaling $12900 annually. To produce 8000 hamburgers annually there would be $9000 in fixed rent costs plus $5200 in raw materials, totaling $14200 annually.

6000 hamburgers would produce an annual per unit charge of $2.15. 8000 hamburgers annually would be $1.78 per unit.

Determining the variable and fixed costs of a product line can help you predict growth and...

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