Cost Descriptors Paper

Cost Descriptors 1

Running Head: Cost Descriptors Paper

Cost Descriptors Paper

Kellie Napper

University Of Phoenix

MBA 503

Cost Descriptors 2

To: HR Manager

From: Kellie Napper, Finance and Accounting

Re: Current Budget Discussions

Introduction

Today in our meeting I noticed as the discussions went on you were taking quite a few notes. It seemed as if we were moving a little fast for you. The budget is going through many changes and we would like to have your input on the future of the budget. In order for the meetings to flow smoothly for everyone I have decided to work one on one with you to help you better understand the discussions. I have here for you a few terms in regards to the companies finance department. These terms will give you the knowledge you will need in order to understand the terms and apply the meaning of the term with the words.

Fixed Cost

Fixed cost are cost that are constant from month to month. Fixed cost includes items such as rent car note and insurance. For example, Kelly Realty will be leasing office space too conduct business. For the space being leased to us, we must pay a monthly lease fee of five hundred dollars a month. The cost we pay for this space is a fixed cost. We call this a fixed cost because the rent stays the same each month. Fixed cost are cost that mus be paid on a regular basis.

Variable Cost

Variable cost are cost that change based on the amount of business you are doing. (Business Knowledge Source.com) A good example of variable cost can come from the manufactung industry. There could be a product that is more in demand this month, because of this you would increase production which include production cost. As production increase you would need more materials to work with. Theses materials include a cost that will vary depending on how much product you have to produce. Another example of variable cost is if you have a delivery company and you receive two new

Cost Descriptors 3

contracts, you will have to purchas the gas to deliver to the two new companies. The variable cost would be the gasoline you have to put into the delivery trucks. The good thing about variable cost is that you should be able to recoup all of your extra expenses with your additional work you are doing. Some accountants get a headache when looking at the variable cost. The revenue is not easily to predict.

Direct Cost

Direct cost are cost that can be directly