Retail store that sells music CDs (Christopher Saunders) The single best measure that reflects the overall level of activity in a music store is the number of CDs sold. As a retail store that only focuses on CDs, their variety of products are very limited. With it being so limited, the total items that contribute to cost are also limited. A majority of their costs are going to be variable costs, which primarily be allocated to the cost of the CDs. The other main variable cost would be labor. The fixed costs associated with a music store would include rent and utilities. As activity changes, the total fixed costs will not be affected. But the busier the store is, there will be more total fixed costs per unit of activity. As activity and …show more content…
The fixed costs will always be incurred regardless of the quantity of orders completed. When activity is increased more food is produced/ used and more labor is used. In restaurants, labor will be reduced based on activity on the fly. This helps when determining the variable cost per unit of activity. Since we are calculating activity based on orders completed, we need to average the amount of items purchased for each order and average the amount of labor hours versus orders completed. The total costs are the combination of fixed and variable costs. Since the inherently fixed costs are stable, this creates a cost base that is increased by activity. Once we have the total calculated we can average this over the total orders completed. As a direct result, fast-food restaurants heavily advertise with the intentions to increase the amount of orders completed and they frequently upsell in order to increase the amount of items per order. Thus this strategy will reduce the fixed cost per unit and reduce the selling price to fight competition or increase …show more content…
An increase in customers will lower fixed cost per unit. Monthly fixed costs of maintenance for machinery used when repairing cars will not change if there is an increase of customers. As far as total variable costs goes, material required for repair will change in direct proportion with an increase in customers and decrease with a decrease in customers. Variable cost per unit will increase with an increase in customers as well. The total cost will increase based on an increase in variable costs. Most of the expenses of an auto repair shop will include fixed costs of machinery and variable labor hours. The decision of how the technicians are paid can increase the variable cost and further increase the total cost. An increase total cost from variable cost will lead a further decreased average total cost per unit. Average total cost per unit will decrease when the service provided increases because of the same amount of fixed cost that is being divided among a larger quantity of service