1. Most businesses have fixed costs and variable costs. Fixed costs are those co
ID: 396227 • Letter: 1
Question
1. Most businesses have fixed costs and variable costs. Fixed costs are those cost that business has to incur even if no revenue is generated or its sale is just zero. A variable cost includes the material and labor cost per unit of the product an organization is manufacturing or selling. Suppose you have a business of selling ladies suits. The variable cost includes cost of buying, transporting to your site, and any labor cost involved in loading/unloading, storing, etc. and it is computed as a cost per unit. Fixed cost includes rent, utilities, taxes, etc. All those costs that are incurred if you do not sell even a single suit. Describe the fixed and variable costs and revenue for the following businesses: a. You own a trucking company b. You own hotel of 50 rooms c. You own a beautician store.
Explanation / Answer
a) The fixed costs are depreciation of trucks and the maintenance cost Incurred for upkeep of trucks. The variable costs are fuel costs, consumables and the driver fees which may be paid on per trip basis.
b) The fixed costs are rentals and taxes as well as the salaries of the housekeeping staffs. The variable costs are the consumables used by guests and the water and Power charges although some of it would be fixed costs.
c) The fixed costs are the salaries of the beauticians and the rentals as well as taxes. The variable costs are consumables used for servicing the clients and water as well as power charges to an extent.
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