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Average Fixed Cost Example. Let's assume it costs Company XYZ $1,000,000 to produce 1,000,000 widgets per year. This $1,000,000 cost includes $500,000 of administrative, insurance, and marketing expenses. That $500,000 are the company’s fixed costs. $500,000 / 1,000,000 = $0.50 average fixed cost per unit.
If Pierre’s recipe makes 6 dozen cakes (72 cakes), the variable cost per unit would be $1. Variable cost/total quantity of output = x variable cost per unit of output. Variable cost per unit = = $72/72 = $1. When Pierre puts his cakes in the shop window for sale, he knows he must mark up the cost per cake starting at $1.
Modified Accelerated Cost Recovery System (MACRS) Example. Company XYZ buys office furniture (considered a 7-year property) for $10,000. According to the IRS table A-1, 7-year property is subject to 14.29% depreciation in the first year. In this situation, the depreciation expense for year 1 would be: $10,000 * 14.29% = $1,429.
Break-Even Point Definition. In accounting, economics, and business, the break-even point is the point at which cost equals revenue (indicating that there is neither profit nor loss). At this point in time, all expenses have been accounted for, so the product, investment, or business begins to generate profit. The concept of “breaking even ...
As such, fixed costs will remain at $500,000. In this example, the total cost to produce 2 million widgets will rise to $1,500,000, and therefore the cost per widget will fall to $0.75 ($1.5 million/2 million widgets). Because the fixed costs have been spread over a larger number of units, the net cost per unit will decline from $1.00 to $0.75.
It is important to note that some fixed costs increase 'stepwise,' meaning that after a certain level of revenue is reached, the fixed cost changes. For example, if XYZ Restaurant began selling 5,000 pizzas per month rather than just 2,000, it might need to hire a second manager, thus increasing labor costs.
Semi-variable costs remain fixed up to a particular production volume. Beyond this volume, semi-variable costs increase in direct proportion to output. Wages, for instance, are semi-variable costs which multiply by 1.5 beyond 40 hours worked in a given week (also called time-and-a-half).
Net working capital can be calculated as follows: Say that a company has $100,000 in current assets and $25,000 in cash. Its current liabilities are $30,000 and debt considerations are $15,000: Net working capital = ($100,000 - $25,000) - ($30,000 - $15,000) = $60,000. This shows that the company has $60,000 to actually run the business.
Tariffs are direct taxes collected by US Customs and Border Protection (CBP), as defined by the Harmonized Tariff System Codes (HTS) book. The HTS codes inform CBP which items – and from where – have active tariffs. This allows taxes to be collected from the importers. Duties are collected as an indirect tax on people or companies bringing ...
Gross Profit Margin Example. Using the Car Manufacturer XYZ’s income statement above, we can compute gross profit margin by dividing its gross profit by its total revenue. This would look like: ($13,927,000 / $137,237,000) x 100 = 10.15%. Let’s look at another calculation for competing Car Manufacturer ABC. The competitor had total revenue ...