Fixed Costs and Variable Costs – Flashcards

costs that do not vary when the activity level changes ex: ren, debt servie on bond obligatons

change in direct proportion to activity levels (or volume) of operations ex: food for the residents of a nursing home, utilities, will change in response to environmental factors as well as occupancy

costs that rise in a "step" pattern' exL cost of supervisors' salaries, increase cost with addition of supervisor for increased population

sometimes used in healthcare organizations, especially in regard to staffing can be fixed when the patient census i relatively stable and then rise when patient census rises

both have mixed elements and are called "mixed cots"

fixed costs are usually budgeted semi-variable costs will be estimates

telephone maintenance repairs utilities occur constantly

fixed portion: the cost associated with having the service (ex: monthly fee for phone serve) variable costs: represents the portion of the charge for actual use (ex: calls placed, long distance, internet connection)

1. predominant characteristics and step method -the manager defies whether the cost is more fixed or more variable and acts on that judgement 2.high-low method -the difference in cost between high levels and low levels is obtained and is divided by the amount of changes in the activity

the amount remaining after you subtract the variable cost from the revenue when the organization is not at capacity, it is the "profit" the organization makes on providing each new unit is available to cover all the other costs

1. recognition of a problem 2. determination of a problem or cause 3. correction of a problem

the total cost incurred by an organization as a result of an out-of-control situation TxRxP t=total time the problem remains uncorrected R= the loss or cost per time unit P= the probability that the problem occurrence is correctable

1. funds required for each budget item or expenditure are calculated for the expected level of activity (budget planning) 2. for each budget item, the difference between actual and planned expenditures is calculated 3. the differences (variances) are examined, and the cause of each variance is identified 4. each positive variance (amount expended that exceeds the amount budgeted) is corrected, either by increasing the funds allocated for the item or decreasing expenditures for it