Posts Tagged ‘Fixed Cost’


Fixed and Variable Costs — The Dilemma

Back in my college days, the university required two courses in economics: Macro Economics and Micro Economics. It was hard to reconcile the two courses. What is hard fact in one was flakey in the other – and vice-versa. As a student it drove me crazy.

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Standard Cost: Setting Overhead Cost Standards

When it comes to setting cost standards, overhead is the biggest problem. Why? Today, aside from material costs, overhead is the largest component of product cost and the least understood. Historically, overhead cost averaged 20% to 40% of labor cost. It was a minor consideration to product cost and was not significant in management decisions. […]

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Sensitivity Training for Activities: Part 2

In Part 1 of Sensitivity Training for Activities, we expanded the classifications of activities to recognize activities in the service sector and service components of manufacturing businesses. We added Order and Customer classifications to the previously defined Unit, Batch, and Product classifications. We’ve kept the Business Sustaining classification for many other activities. We affirmed the […]

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Sensitivity Training for Activities: Part 1

We’ve all been to sensitivity training to recognize, appreciate, and potentially take advantage of the diversity inherent in business and our workplaces. Another form of sensitivity training concerns activities we do every day in business. In early Activity-Based Cost literature we find discussions about the level concept. However, this early literature concerned product related activities […]

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The Hidden Trap of Marginal Costing

Back in business school, my professor presented us with a case study. The core question of the case was whether to take an order where the price was at a significant discount from normal pricing and less than the full cost of the product. Of course the natural conclusion was to refuse the order. Why? […]

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