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Essay / Research Paper Abstract
This 5 page paper looks at how fixed costs may cause errors management decisions. The paper looks at this in a logical manner, first explaining what fixed costs are and how if they are inaccurate they can lead to major mistakes in the information upon which decision are made, The paper then looks at how mistakes may be made in the way fixed costs are estimated. The bibliography cites 10 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEfixcos.rtf
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Unformatted sample text from the term paper:
need, upon which decision will be based. However, like any other information tool, the quality of the decision made will represent the quality of the information that is input into
the system. One area where there is great potential for error is that of the fixed costs. These are used in the forecasts which are an important enlacement of any
management decision making model (Shumsky, 1998). Generally speaking there are two types of costs in accounting, fixed costs and variable costs. Fixed costs are those costs that will remain the
same regardless of how much is produced. For example, the cost of the building, the cost of insurance, rates and other none changing costs (Chadwick, 1998). Variable costs are the
costs that will vary directly in line with the level of production, fir example, the parts that are used in production and transportation costs. There are also some costs that
can be classified as semi variable, as they may vary, but only within set parameters, for example, labour. Now fixed costs have been defined, the next stage is to
consider how they are used in accounting as this will indicate how and why errors may manifest. The use of accounting information may be seen in the way costs are
calculated, this may be by absorption costing, marginal costing or activity based costing. In all cases there is the need to determined what the fixed costs are going to be
in the future, so that they can then be attributed to the relevant departments of goods in order to ensure that all costs are recovered. For example, in marginal
costing the product will be costed out according to the variable costs. The profit on the price attained after the variable cost is then counted as a contribution towards the
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