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Fixed cost; Variable cost; Overhead cost; If achieved, the split of cost helps to identify cost drivers. Direct labour and materials are relatively easy to trace directly to products, but it is more difficult to directly allocate indirect costs to products.
Job costing or cost accounting can be used in virtually any industry (especially service industry) to ensure that the product pricing covers actual costs, overhead and provides a profit. The purpose of any business is to make money, and job costing is the most effective way to ensure that occurs.
Variable costs are sometimes called unit-level costs as they vary with the number of units produced. Direct labor and overhead are often called conversion cost, [3] while direct material and direct labor are often referred to as prime cost. [3] In marketing, it is necessary to know how costs divide between variable and fixed. This distinction ...
The labour cost of sales = l λ q, where l is the amount of labour hours required to make one unit of finished goods; λ is the labour cost (rate) per hour. The variable overhead cost of sales = nq where n is the variable overhead cost per unit. This is not here subdivided between quantity per finished goods units and cost per unit.
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 ...
In business, an overhead or overhead expense is an ongoing expense of operating a business. Overheads are the expenditure which cannot be conveniently traced to or identified with any particular revenue unit, unlike operating expenses such as raw material and labor.
The LTV seeks to explain the level of this equilibrium. This could be explained by a cost of production argument—pointing out that all costs are ultimately labor costs, but this does not account for profit, and it is vulnerable to the charge of tautology in that it explains prices by prices. [17]
The marginal profit per unit of labor equals the marginal revenue product of labor minus the marginal cost of labor or M π L = MRP L − MC L A firm maximizes profits where M π L = 0. The marginal revenue product is the change in total revenue per unit change in the variable input assume labor. [10] That is, MRP L = ∆TR/∆L.