FIXED AND VARIABLE COSTS

Fixed and Variable Costs

Fixed and Variable Costs

The high-low method in management accounting is a method of identifying fixed and variable costs in semi-variable costs. A semi-variable cost bears elements of fixed costs (FC) and variable costs (VC). It is necessary to separate them when making future costs projections for semi-variable costs. The high-low method is one of several methods for identifying fixed and variable costs in semi-variable costs. The others include scatter graphs and regression analysis.

AT&T is paying $499 for each Bold and then subsidizing them to $299 after rebate. That means that AT&T is planning on recovering that over the contract. The $499 price is in line with the $549 no commitment price that AT&T is charging. I would assume that after 6 months of making a device RIM has turned on some economies of scale and reduced their original fixed cost of $158.16 in parts. ( John Shank, 1990)

AT&T incur fixed costs when buying heavy machinery, buildings, or other large purchases. A fixed cost is called 'fixed' because when production increases in the short run, new buildings and machines are not immediately needed. Because fixed costs are not tied to production, firms have an incentive to produce as much as possible (assuming they can sell their product). Intuitively, a large factory should produce a large number of units to minimize its fixed cost per unit. Say that an automobile factory costs 1 million dollars. If it only produces 1000 products, then its Fixed Cost Per Unit is 1 million dollars divided by 1000 products, or $1000/Car.

If AT&T produces 8000 products, however, its Fixed Cost Per Unit is 1 million dollars divided by 8000 products, or $125 per car. By producing 7000 more products, the firm gets an 88% fixed cost reduction per car.

AT&T ...