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In accounting and economics, a semi-variable cost (also referred to as semi-fixed cost) is an expense which contains both a fixed-cost component and a variable-cost component. [1] It is often used to project financial performance at different scales of production.
Fixed costs include items such as the rent of the building. These generally have to be paid regardless of what state the business is in. Variable costs , which may increase depending on whether more production is done, and how it is done (producing 100 items of product might require 10 days of normal time or take 7 days if overtime is used.
Non-recurring engineering (NRE) cost refers to the one-time cost to research, design, develop and test a new product or product enhancement. When budgeting for a new product, NRE must be considered to analyze if a new product will be profitable. Even though a company will pay for NRE on a project only once, NRE costs can be prohibitively high ...
It is assumed some costs are fixed in the short-run and are thus considered "fixed costs". Thus production costs are determined by variable costs. However, in the long run, all costs are variable, which allows more flexibility in changing inputs to determine the optimal level of inputs for a profit maximising output.
Along with variable costs, fixed costs make up one of the two components of total cost: total cost is equal to fixed costs plus variable costs. In accounting and economics, fixed costs, also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They ...
Thus, while credit cards which charge an annual fee plus a per-transaction fee is a good example of a two-part tariff, a fixed fee charged by a car rental company in addition to a per-kilometer fuel fee is not so good, because the fixed fee may reflect fixed costs such as registration and insurance which the firm must recoup in this manner.
On the other hand, if the business is not even able to cover operational costs, it should shut down. [32] Although this rule largely differs depending on the size of the business, the business's cash-flow, and the competitive nature of the business, it serves as a model rule for most small competitive businesses to operate on. [33]
Business ethics operates on the premise, for example, that the ethical operation of a private business is possible—those who dispute that premise, such as libertarian socialists (who contend that "business ethics" is an oxymoron) do so by definition outside of the domain of business ethics proper.