T1B26

October 5th, 2015

Hello dudsons!

So today we will be talking about the costs of doing business.  Firstly, you need to know that there are mainly two types of costs: fixed cost and variable costs.    

Fixed costs are expenses that will stay the same and will not really fluctuate for a business, regardless of how the variable cost (which I will explain later) will change.  This can include the rent of the space occupied for your office, insurance for the company, taxes, and salaries.  Of course, the list doesn't end there.  

Variable costs are costs corporate expenses that are subject to change.  They are a direct function of production volume, it rises when there's a high demand for your product(s), and falls when there is less demand for your product(s).  According to investinganswers.com, the formula for calculating for the total variable cost is:  

Total Variable Cost = Total Quantity of Output x Variable Cost Per Unit of Output

So to put it in more basic terms, the variable costs of a business are usually something to do with production of your product(s).  A variable cost can also be associated with shipping costs and also sales commissions.  

Actually there is one more type of cost that is called a semi-variable cost.  This can include telephone charges, repairs, maintenance, electricity bills etc.  These costs somewhat stay the same, but say if the washroom in your company suddenly flooded, then you would have to pay money to find someone to repair it.  That's not going to happen often, so it may look something like a straight line in a chart, then a little hump appears and then goes back to being a straight line.  I think I didn't explain it that clearly, but I think you know what I mean.     

Here is an excellent, but fairly simple-to-understand chart, so you can understand even more what a variable cost and what a fixed cost is:

                                   

--Cyndi Forrest