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rwheeler_fixed_and_variable_costs_060417.docRunning head: FIXED AND VARIABLE COSTS 1
FIXED AND VARIABLE COSTS 3
Fixed and Variable Costs in Ford Motor Company
Name: Rodney Wheeler
Institution: Rasmussen college
Course: A332/ACG3357 Section 02 Accounting for Business Managers
Date: 06/04/17
Fixed and Variable Costs Used By Ford Motor Company
Fixed Costs
Fixed costs are those costs that are connected with the product of the enterprise. These costs must be paid irrespective of the amount of the product that the company sells (Berry, 2016). One of Ford Motor’s Company fixed cost is overhead. This includes the rent of the space that the company occupies, the weekly payroll of the workers and the depreciation on the spare parts that Ford uses to manufacture its cars. Ford Motor Company tries to reduce some fixed costs to increase the cash flow and the balance sheet.
Variable Costs in Ford Motor Company
Variable costs are directly connected to the volume of sales of the Ford's products. The variable costs of the business increase with the increase in sales and vice versa (Berry, 2016). The variable costs in Ford Motor Company include the cost of labor, costs of materials used to process the products, sales commissions, transport charges, delivery costs, wages and salaries. An extra variable cost is the performance bonuses that is categorized under the payroll. The company tries to minimize the variable costs especially the cost of production to maximize the profits.
How an Increase in Variable Costs Would Affect Some Fixed Costs
The overall cost of the company consists of the variable and fixed costs. Both prices change the marginal cost of production (Ederhof, 2017). An increase in the cost of materials would increase the fixed cost such as rent. For example, if the company imports more materials, that means the cost of the materials will exceed the budget. As such, Ford Motor Company will have to expand on the business. Renting a larger space would cost more as a result of the increase in the materials.
References
Berry, S., Eizenberg, A., & Waldfogel, J. (2016). Fixed Costs and the Product Market Treatment of Preference Minorities. The Journal of Industrial Economics, 64(3), 466-493.
Ederhof, M., Nagar, V., & Rajan, M. V. (2017). An Empirical Analysis of Capacity Costs.
