Variable Or Fixed Cost
Being able to determine whether a cost is fixed or variable is vital to the understanding of overhead loading and cost behavior. A fixed cost is unchanged with a change to the cost driver. (Horngren, Sutton, and Stratton p.46) Which means that a fixed cost does not rise with the change is production of your product. A good example of a fixed cost is rent. No matter how many widgets you make (within a relevant range) your rent will not increase. A variable cost, on the other hand, does change with the amount of production. A good example of this is raw materials. If you make more widgets you will need more raw materials to produce those widgets. So a variable cost changes in direct proportion in the cost driver level. (Horngren, Sutton, and Stratton p.46)
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......
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