Recent Articles

Variable Costs

Costs that must be incurred to produce or sell a service or a product are considered variable. These include raw materials, cost of inventory, hourly wages, and in some situations, utilities. These costs are a part of the contribution margin formula of Sales less Variable Costs equals Contribution Margin.

Breakeven Analysis – Fundamentals


Breakeven analysis is a managerial (cost) accounting tool used to examine the relationship of price to cost of a product.   It also considers various sales volumes and the effect on profit given the different relationships of price to cost.   [...]

Leverage in Business


In the simple lever and fulcrum machine the force is magnified onto a load.  The machine creates a mechanical advantage, a form of force amplification.  In business the principle is exactly the same.  Except here we are not moving a physical [...]

Fixed and Variable Costs in a Restaurant


Many restaurant owners and managers do not understand the difference between their fixed and variable costs.  The problem with defining the two types of costs relates to their connection with sales.  In addition, reasonable assumptions have to be [...]

Mixed Costs


Mixed costs are a more advanced business concept.  Mixed costs refer to a combination of both a fixed and variable component.  A common error made by most small business entrepreneurs is the misapplication of the formula.  Many small business [...]

Heads on Beds – Hotel Management


The hotel business has one tenet that stands above all other hospitality based business standards.  Get heads on beds.  Why does this one business standard have so much more value than any other?  Well, it is simple, the fixed cost of [...]

Variable Costs


Variable costs are those business related expenditures that vary in proportion to production.  The most common examples of variable costs include raw materials, labor, packaging and distribution expenses related to producing and delivering the [...]

Cost per Mile – The Basic Formula


In any industry, especially transportation, it is essential for the owner of a business to understand how much it costs per mile to operate his vehicle, trucks or fleet.  The formula looks simple and in reality it is; but you must understand the [...]

Fixed Costs – Explanation and Examples


‘Fixed costs’ is a business term used mostly in cost accounting.  It has several meanings based on its usage.  The most common definition associated with fixed costs is expenses that must be paid regardless of production or sales volume.  The [...]