Accounting - V
Santosh_2102
Week6.docxCHEVRON INCORPORATION COST BEHAVIOR:
Chevron Incorporation is a multinational American based energy producer. Its main products include a dynamic production of natural gas, oil, geothermal energy. Other alternatives products are biofuels, hydrogen, solar, wind power, as well as fuel cells. According to the review of the business operations and products in the organization, the company incurs several costs. These are the operational costs, increment costs, taxation costs, value added costs, and repair and maintenance costs. This paper would discuss these costs and the appropriate cost behaviors.
First, Chevron Inc. being one of the largest energy production organization is at risk of incurring various operational costs refers to costs that can be associated with administration and maintenance of day to day business in the company. The main operational cost for the company is the maintenance of salaries for large and diverse employees. The company has over 62,000 employees. The organization also run massive projects in its operational countries — for instance, the Gorgon Gas Project in Australia which cost the company $43 billion. With the operational cost, the viable cost behavior would be a variable cost due to its fluctuating significance. For instance, the operational costs keep changing over the entire time and depend on the economy of a relevant country. For Chevron Inc. its operations in various countries provide a scattered diagram variable that is depended on changes in units. For instance, the company requires new machines, additional employees, and new market entry in a new country, among other factors. Overtime for employees can also be used. Therefore, there is a significant relationship between fixed and variable costs of operation in Chevron (Chevron. Inc, 2019).
Secondly, the company might incur a marginal cost which can also be referred to as an incremental cost which Chevron incurs due to the sale of additional products. Being an energy production company, apart from production of the main products such as geothermal energy, oil, and such related products, the company increases its costs due to manufacture of other additives such as hydrogen gas produced during the manufacturing process, fuel cells, solar generated as the operations launch thermal solar-steam, among other products. Being an additional costs, the cost behavior, in this case, changes to mixed costs behavior since they are not expected. Graphically, this case is plotted as trough scattered diagram or least-square regression due to its different units.
Payment of taxes is another relevant costs that the company incurs in its daily operations. The cost behavior for this is mixed cost behavior also referred to as semi-variable costs. The company pays various taxes in different countries differing and depending on the economy of the country. Taxes might vary or remain constant thus explaining the mixed variance occurrence (Chevron.com, 2019).
One of the most outstanding strengths of the company is its investment in research and development. Chevron Inc. has invested heavily in research, mainly in new market entry, minimizing biofuel accidents, the safety of the people and staying relevant in the market. Through this cost, the organization uses step cost behavior. Step cost behavior refers to costs that are incurred for a short range of activities. The cost is incurred in steps since the management determines the means and effective mechanisms of cost-effectiveness. For example, the cost for research is short structured, only implemented when change is required or a need is identified.
In conclusion, Chevron Incorporation runs a massive operation across the world in energy production. The company incurs certain costs such as operational, labor, management and maintenance of the machinery, among others. These costs have been associated with various cost behaviors such as fixed, variable, step, as well as mixed cost behaviors.
References
Chevron. Inc. (2019, February 20). products and services. Retrieved from Chevron Incorporation: https://www.chevron.com/operations/products-services
Chevron.com. (2019, February 20). Operations. Retrieved from Chevron.com: https://www.chevron.com/operations
