Explain the different types of costs, Cost Analysis help

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yvafrlerarr

Business Finance

Description

In a 4-5 page paper, please include the following:

  • Explain the different types of costs (variable, fixed, sunk, opportunity, direct, indirect).
  • Give 1-2 examples of each type of cost and explain how these costs will be applied during the manufacturing process.
  • Conclude your paper by describing the importance of these costs in managerial accounting.
  • Be sure that the paper has no spelling or grammatical errors.
PLEASE CITE EVERYTHING IN APA FORMAT

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Explanation & Answer

Have a look at the document and in case you require any edits please inform me.
Hi Linseyrenee,Here is the edited work that has grammar and spelling mistakes corrected, and also a reference. In case you require additional references or any other edits, please inform me. I have also attached the outline.

Running head: COST ANALYSIS

1

Cost Analysis
Author Name
Institutional Affiliation(s)

COST ANALYSIS

2

There are various types of costs in managerial which include variable, fixed, sunk,
opportunity, direct and indirect costs among others. Variable costs are costs which change
depending on the volume of production. They increase when the volume of production increases
and vice versa. Variable costs include cost of direct materials and direct labor. It can be
illustrated how variable costs apply in a manufacturing process. Take an example of an industry
that manufactures soap. The direct materials include oil, caustic soda, perfume and packaging
material among other materials. Labor is required in the mixing of the soap ingredients, cutting
of the soap into required sizes, packaging of the soap, packing of the soap into boxes and
carrying of the boxes to the warehouses among other activities. The direct materials and direct
labor required in this case are variable costs because as more soap is manufactured, more of
direct materials and direct labor is required.
Fixed costs are those costs that do not change with the change in the level of production.
They include rent, salaries, depreciation on fixed assets and insurance among others. In the case
of a company manufacturing soap, fixed costs may include the rent paid for administrative
offices and buildings in which production is done, salaries to managers and accountants,
depreciation of machinery used in the production and cost due to insurance on company vehicles.
Sunk costs are those costs that have already been incurred and cannot be recovered. They
include funds spent on past projects and funds spent in the purchase of assets that are no longer
useful. In the case of the soap manufacturing company, sunk costs may include funds spent to
buy manufacturing equipment that is no longer useful because for example, it uses old
technology.

COST ANALYSIS

3

Opportunity cost refers to the value of the forgone alternative. When funds are invested
in a certain project rather than another one, or when an asset is used in a certain means of
production rather than in another, then the returns due to the forgone alternative is the
opportunity cost. There is an opportunity cost every time an investment decision or production
decision is made. Take an example of a company that decides to use an old building for
production instead of selling it out. The returns that would have been realized as a result of
selling the building is the opportunity cost. Another example would be a company that decides to
rent a building to use for production instead of buying land and constructing buildings to use for
production. The returns that would have been realized from buying land and constructing
buildings is the opportunity cost.
Direct costs are those costs that can be associated directly wi...


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