ECO 561

Fixed costs and variable costs, incurred by firms in the course of normal operations, are different in the way that they fluctuate with output. Fixed costs are, “costs that in total do not vary with changes in output” (McConnell, Brue, & Flynn, 2009, Fixed Costs, p. 159). Fixed costs, linked to a firm’s plant, are universal and paid despite the amount of output (McConnell et al., 2009) According to McConnell et al. (2009), variable costs change with the amount of output and include payment for things such as labor, transportation, and fuel. Some organizations, such as those in the services industry, will incur higher variable costs and lower fixed costs. Other organizations, such as those in the manufacturing industry, will incur higher fixed costs and lower variable costs.

Fixed and Variable cost analysis for Tesla Motors

Tesla Motors is founded by 2003, by Silicon Valley engineers to design and manufacture electric vehicles (ABOUT TESLA, 2014). Being a manufacturing company Tesla motors has fixed and variable costs in its operations. The income statements for 2012 and 2013 were analyzed (Income Statement, n.d.). Research and development cost is considered as fixed cost from the statement. The selling and administrative cost is treated as variable cost, as further detailed data was not available. In 2012, Tesla sold 2,650 cars, and in 2013 the sales increased to 17,650. Being a company starting to get established, and continually expanding, it is interesting to look at their data, as the results are mixed, as the variable cost appears to go higher in this case. The selling and administrative cost, when detailed, shall result in additional fixed cost in the long run and variable cost is expected to come down.

Data derived from Tesla Motor’s Income statement (Income Statement, n.d.).

Conclusion

ABOUT TESLA. (2014). Retrieved from http://www.teslamotors.com/about

Income Statement. (n.d.). Retrieved from http://finance.yahoo.com/q/is?s=TSLA+Income+Statement&annual

Fixed Cost 2650 17650 231976 273978 Variable Cost 2650 17650 150372 285569 Total Cost 2650 17650 382348 559547