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Essay example - the operating statement
Finance & Accounting
Pages 4 (1004 words)
Date Irrespective of what business one is involved in, the major aim of most businesses is to make profits and managers are the custodians of the same to the owners. Profits can be made when sales are increased hence a rise in sales revenue…
Extract of sample
Variable costs are costs are those, which vary with the level of activity while fixed costs are those, which are constant irrespective of the level of activity. However, the increase or decrease of fixed costs is not related to the level of activity alone as they may though change over a period. Variable costs on the other hand are directly related to the business activity; they include costs such as those for raw materials and inventory. They vary in the sense that the more of each you need in production the more the costs will increase (Czopek 2004). When the budgeted of these costs is more than the actual, then the discrepancy is termed as an adverse and a control measure must be put in place in actual/real time (Czopek 2004). The operation statement will therefore help the management in identification of each of the costs, when they are favorable as well as when they are adverse and formulate the control mechanisms for normal operations. As there is no single direct way or strategy of cost management and control, the mangers will be forced to examine the whole business strategy and make a determination of how to achieve a cost reduction without interfering with the business operations. Variable cost control Variable costs will rise with expansion in production and fall when production falls; this is quite useful for effective decision-making. ...
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