Overview
What are examples of variable costs, and what strategies do financial leaders use to forecast them?
POST
please reply with 100 words student 1While thinking about the variable costs for
businesses, it is essential thinking about the short-run production (Chen, 2015). Thus, what are
variable costs are costs that vary directly with the level of output. In other words,
output is zero a variable cost will be zero but as production increases then
total variable cost also rises, an-increase in short-run output will cause total
variable cost or TVC to go up average variable cost or variable cost per unit
is calculated simply by talking total variable cost and dividing by the level
of output. The crucial
point to take from this side is that variable Examples
of Variable costs:Direct Material Costs: direct materials can be referred as raw materials that
are required to develop a product or service and vary along with change in
volume of output. Direct material costs are completely variable costs (Fixed and
Variable Costs: When Accounting Is the Opposite of Cash Flow Reality, 2016). Piece Rate labor: wage paid to worker against every unit of job completed. This cost varies
from changes in output level. Commission: Commission
are paid to salesmen in only case, if sale products or service sustain and it
totally depend upon units sold by the salesman.
Freight out: It
can represent as a shipping expenses sustain only if organization moves their
raw material from one place to another place will. Thus, it also taken as a
variable cost. Strategies
to forecast variable costs:The techniques used financial leaders to forecast the
variable costs; such as accounting analysis, scattered graph, high-low method,
and regression analysis. The following factors need to consider for successful
forecast: 1) Financial leaders
must maintain the information about the incurred costs and they need to find
all the variables costs more tentatively.
2) Second, they must
have an accurate accounting data 3) Third, it is
necessary to use the estimation technique with which is closer to forecast
variable costs. ReferencesChen, X. (2015). Variable
Costs, Fixed Costs and Entry Deterrence. Ottawa: Department of Economics
at the University of Ottawa.Fixed and Variable Costs:
When Accounting Is the Opposite of Cash Flow Reality. (2016). Journal of
Corporate Accounting & Finance, 27(4), 31-35.please reply with 100 words student 2Variable
costs are those that can change with the quantity of output or activity
level. This means you will not be using the same amount of material for 100 units as you would be for 10,000 units. The overall cost will change when more or less units are used however the price per unit remains constant. Some examples of variable costs would be the costs of raw materials, cost of labor, utility costs, and sales commission. In order to forecast these variable costs financial leaders, use the following strategies: high low method, calculate the average variable cost, and break-even point in units. The high low method is a simple method too forecast the variable costs. In order to utilize this method, you analyze the highest and lowest production volumes over the past year by calculating the following: Resulting Cost = total cost of highest production volume – total cost of the lowest production volume Calculated volume = number of items from highest volume – number of items in lowest volume Estimated cost per unit = resulting cost / calculated volume The second method is to calculate the average variable cost by: Average variable cost = total variable costs / total output The Third method is break-even method. This method helps determine the company’s financial future whether they will lose money or make money on a certain job. This is crucial to every business since every business wants to make money. The break-even equation is as follows: Break-even point in units = fixed cost/ sales price per unit – variable cost per unit