ACG Unit 1 IP Lorraine Huff - 1 Running Head: FIXED AND...

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1 Running Head: FIXED AND VARIABLE COSTS Fixed and Variable Costs Lorraine Huff American InterContinental University March 28, 2010
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2 The total annual cost for raw materials for the restaurant, or the cost of the hamburgers, is $650. With the annual number of units sold being 1000, to find the cost per each unit the total annual cost must be divided by the number of units annually sold. So, 650/1000 = $.65 each hamburger. The raw materials in the scenario would be the variable cost. The variable cost is defined as “a cost that changes in direct proportion to changes in the cost-driver level.” Simply put, the variable cost changes with the amount of units sold. The total annual cost for building rent is 9000. Rent is normally due on a monthly basis, so to find a per month cost of the building rent we would have to divide 9000 by 12. So 12/9000 = $750 per month. The building rent in this scenario would be the fixed cost. Rental agreements, or leases, are created in part to maintain the amount of rent that will be paid annually. This means
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ACG Unit 1 IP Lorraine Huff - 1 Running Head: FIXED AND...

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