Question

As a new store manager who is aware of the potential of variable costing, how could this information be used to p?resent your store’s performance in a good light?

Answer 1

Variable costs means the costs incurred to produce an additional item of goods. Hence wages, raw materials, etc would form variable costing. Other than this, all other costs are kept separate.

In the short run any business should atleast be able to recover the variable costs and the gross profit should be atleast be sufficient to cover the fixed costs in the long run. Only after the fixed costs are recover, can than a company starts making profits. It helps in better evaluating the selling price of the product. If the company has already covered its fixed cost for the period, then a steep discount can be offered to some one off large orders so as to keep a margin above variable costs.