Research and discuss the differences between variable and fixed costs Paper

And discuss the differences between variable and fixed costs and provide examples of both - Research Paper Example Such costs become directly proportional to the change in activity level such as raw materials, hourly wages and commissions, utilities, inventory, office supplies, and packaging, mailing, and shipping costs. (Taheri et al. 2000; Besanko et al. 2010) Fixed costs are said to be fixed irrespective of the change in production level. But they might change overtime. Hence, they are sometimes referred to be as Period costs. Sometimes it happens that fixed costs are incurred at the discretion of the management of a company, such as advertising and promotional expense, while other costs are not incurred in such situations. It is important to remember that all non-discretionary fixed costs will be incurred even if production or sales volume falls to zero. Although production and sales volume are the main factors determining the level of variable costs incurred by a company, these costs also may vary in relation to other factors, such as changes in prices fixed by the suppliers or seasonal promotional efforts. Some expenses may have both fixed and variable elements. As for example, a company may pay a sales person a monthly salary, which is considered to be as a fixed cost, plus a percentage commission for every unit sold above a certain level, which is considered to be as a variable cost. (Seo, 1991; Aryasri, 2007) One must take into note the different type of costs incurred as there happens to be an increase in the production or sales volume. Total fixed costs remain unchanged as volume increases, while fixed costs per unit falls. On the other hand, variable costs behave differently. Total variable costs increase proportionately as volume increases, while variable costs per unit remain unaltered. (Seo, 1991) As for instance, in the healthcare industry, allocation of various elements of cost to the trauma service are based on applying various cost accounting standards and