Introduction
It is imperative for the Human Resource Manager of any firm to have an understanding of the company budget and how it is affected by certain costs. It has been brought to my attention that the HR manager of my company lack knowledge in that area, particularly concerning the meaning of certain cost descriptors. The terms, which will be included in this report, include fixed, variable, direct, indirect, sunk, marginal and total costs. This report will serve the purpose of giving the HR manager the knowledge and understanding necessary to run a business.
Fixed Cost
Fixed costs are costs, which do not vary or change depending on or according to sales and/or production levels in a firm (Block & Hirt, 2005). Examples of fixed costs include insurance, property tax, rent or interest expenses. A business owner or retailer has to pay utilities and rent no matter how much money they make in sales. The rent and utilities are fixed costs because they do not change whether the retailer has much or little profit or losses. Fixed costs remain almost constant. They change very little, if at all, over a period of time.
Variable Costs
Variable costs, to the contrary of fixed costs, are expenses that experience changes depending on a firm’s activity (Block & Hirt, 2005). Examples of variable costs include the cost of materials, labor and other overhead costs, which change according to the volume of production. Fixed costs and variable costs combined comprise the total cost of production in a firm. Variable costs change as production increases. Fixed costs, however, stay the same.
Direct Cost
Direct costs are costs, which are attributed directly to providing services or manufacturing pr ...