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Essay / Research Paper Abstract
This 4 page paper uses a simple product in the fast food chain; fries. The paper looks at the difference between variable and fixed cost, assesses the potential variable costs for the product and calculates the contribution. This is then used to demonstrate the way in which the breakeven point may be assessed once fixed costs have been allocated. The way in which fixed costs may be allocated is also discussed. The bibliography cites 3 sources.
Page Count:
4 pages (~225 words per page)
File: TS14_TEcostfries.doc
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Unformatted sample text from the term paper:
the break even point has been reached. This can be demonstrated by looking at a simple product, such as a packet of fries from McDonalds.
When calculating this there are two types of costs which need to be considered; the variable costs and the fixed costs (Chadwick, 2003). Variable costs may also
be referred to as the direct costs. These are the costs with will vary depending on the number of units produced; they are the direct inputs (Watts, 2008). These are
only used where goods are produced, and are not used if goods are not produced. For example, when looking at the packet of fries from McDonalds the direct costs will
include the cost of the frozen fries, the cost of the packaging and the oil used to cook the fries and the labor to cook the fires. If the fries
are not made, none of these will be used. By comparison the fixed costs, which may also be referred to as the overheads,
are the costs which are incurred regardless of the amount of production. For example, the costs associated with the real estate, such as the lease or rental costs, these remain
the same regardless of production level. Overheads also include costs such as utility bills and insurance, the former of these may be seen as semi variable, as these bills will
be present regardless of the actual production. However, they may be seen as semi-variable as they may vary in terms of the amounts, for example, a restaurant with a high
level of production will need to use more power than a comparable restaurant with low production levels. However, the power is used across all the activities. Another source of overheads
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