There are two general types of costs in business: fixed costs and variable costs
ID: 2720268 • Letter: T
Question
There are two general types of costs in business: fixed costs and variable costs. Fixed costs are expenses that do not change (in the short run) with changes in activity or production volume. Examples include rent, salaries, and utilities. Variable costs include materials and hourly wages. A simple model for the total cost of operations, as a function of quantity of product produced, is T = F + VQ, where F is fixed cost, V is variable cost, and Q is quantity produced. Umbrella Corporation has the following cost equation for each month: T = 7,550 + 2.465Q This month. Umbrella sold 4.98 items. What percentage of total costs is made up by variableExplanation / Answer
Calculation of Variable cost:
Variable cost =Units * 2465 = 4.98 *2465 = 12275.70
Fixed cost = 7550
Total Cost = Variable cost + Fixed cost =12275.70 + 7550 = 19825.70
Percentage of total cost made up by variable cost = 12275.70 / 19825.70 =0.6192 = 61.92%