Company Operations and Related Costs The production costs of different companies exhibit different behaviors in relation to production levels. Because of these different behaviors exhibited, the costs are divided into three; fixed, variable and mixed. Fixed costs do not vary within relevant range of production, meaning they are incurred even in absence of production activity. Variable costs changes directly proportional to the production activity levels whereas mixed costs exhibit both fixed and variable cost behaviors (Albrecht, 1062). This paper examines costs of six different companies. Costco This company was established in the year 1976 under the name Price Club, in San Diego.
Small businesses were the target at start. However, it expanded its operations to non-business members. It opened its first warehouse in Seattle in 1983. It made a record growth of 0- $3billion in less than 6 years. The organization operates as a membership warehouse club, providing its members best price on a variety of merchandise. Fixed costs of the organization include directors’ remuneration and depreciation. This is because whether operations continue or not, the directors will be paid and the vehicles used in distribution and delivery depreciated.
Variable costs comprise fuel cost and purchases of merchandise. Fuel cost depends on the number of delivery or distribution trips made while purchases depend on the merchandise bought for resale. The possible mixed costs of this company are distribution costs and delivery cost since they involve vehicle depreciation and fuel costs. Deckers’ Outdoor Corporation This corporation was started by a student from University of California, Otto Doug, by making and selling sandals along the west coast. Currently it is accompany operating globally providing six different brands namely Ahnu, Sanuk, Mozo, Tsubo, Australia and UGG.
It was ranked number 9th best small company in 2007 by Forbes. Company’s possible fixed costs include supervisors’ salary and plant depreciation. These two will be incurred regardless the state of operations. Variable costs are direct materials cost and direct labor. The raw materials bought dictate the direct material costs whereas number of labor hours completed determine the direct labor costs. For example, if overtime is clocked, the cost will increase. Mixed costs will include communication expenses and electricity cost. Communication cost cannot be classified as fixed or variable because it has no base whereas electricity cost involves that fixed portion utilized by offices and variable part depended on the machine hours. Ircon International Limited (IRCON) Ircon deals with construction services specializing in MRTS, EHP and Railway and Highway.
It was incorporated as a government company in 1976 by India’s ministry of railways. It currently operates globally. The fixed costs are definitely the depreciation of the trucks and machines used for the construction and the company’s permanent employees. Fuel used by the construction machines will constitute variable costs together with wages to casual workers employed.
On the side of mixed costs, communication costs and electricity usage on construction sites will count. Gulf Craft Inc It is concerned with making of yachts, a business it has carried for over 30 years. Four of its yards are located in Emirates while one is in Maldives. It provides four kinds of services spare parts (for damaged yachts), trailers (for moving boats from one location to another) and services centers (for serving customers with faulty products). Fixed costs include top managements remuneration and insurance.
This is because the insurance amount is for a certain period. Variable costs include cost of direct material components used for yacht manufacturing and expenses such as sales commission to its representatives in foreign countries. Mixed costs possibly comprise electricity consumption at the yards, partly used by offices and machine hours. Biolea This company is based in the Crete. It produces organic olive oil through stone milling and cold pressing. All of the company’s organic olive oil production operations and processes are undertaken in the small village of Astrikas on Astrikas Estate.
The Biolea Company was founded by Dimitriadis George in the year 1994. From a strong scientific base, the company adheres to innovation and self reliance principles. It promotes and preserves traditional farming techniques. Also, it supports sustainable agriculture. The company’s fixed costs are research and advertisement costs. This is because to uphold innovation, the company has to undertake research. To boost the sales volume, advertisements must be made to attract customers’ awareness. Theses two costs are independent of production levels, thus classified as fixed costs. Variable costs include cost of packaging, dependent on the amount produced and packaged, and labor costs, dependent on the hours worked.
The mixed costs include water and electricity bills. This is because such costs comprise of a fixed amount plus a variable amount depended on the units used. Evian The company deals with two product lines, drinking water and facial spray. It bottles natural mineral water from the French Alps. To ensure serving most customers, it bottles the water in different bottles suitable for different purposes such as sports, leisure and for office. The fixed costs include the administrative overheads and advertisement costs.
Whether the quantity of water bottled increases, decreases or remains the same, the costs relating to advertisement and administration remain the same. Cost of the bottles and fuel used in the operations constitute variable costs because they are dependent on quantity of water bottled and vehicles activity completed respectively. The cost of power used and telephone communication make up mixed costs, because they have a fixed amount and a variable amount dependent on the quantity used. Works cited Albrecht, W S. Accounting, Concepts & Applications: What, Why, How of Accounting.
Mason, OH: South-Western/Cengage Learning, 2011. Print.