THH3113 Assignment Solution Help
Fixed cost: the fixed cost does not change according to the change in the number of goods and services produced or sold. Fixed costs are the expenses that a company or specific business activities. The fixed costs are generally indirect costs and these do not apply to the company’s production of any goods or services. There are mostly two types of costs, fixed and variable costs. Fixed costs are the expenses that a company has to pay irrespective of the business activities performed by the company. These costs are decided over a specific period and do not affect even when the production level increases or decreases. Fixed costs can be indirect or direct and have a contribution to affecting the profitability of a business at some point in time. Many companies have interest payments as fixed costs that are a factor for net income. The total cost structure of a company is decided based on fixed and variable costs. Costs are generally a key factor that influences the total profitability of the company. For example, the salary of the management staff is considered as a fixed cost, and rent paid for the factory is also considered as a fixed cost.
Variable costs: variable costs are the cost that changes according to the change in the volume of production of goods and services by a company. This cost decreases or increases according to the company’s sale or production of goods or services. If the production increases then the variable cost will also increase but if the cost decreases it will mean that the company started producing fewer amounts of goods and services. This cost is the complete opposite of fixed cost because, in fixed cost, the cost is not affected by the amount of production or sales in a company but in this case, the cost is influenced by the amount of change in the production or sales level of the company. The total expenses of a company include both variable costs and fixed costs. Variable costs are dependent on the sales output or production output. For example, variable costs consist of the commission charged by the salesman for selling each unit of product. The higher amount of units sold by the consumer will lead to a higher amount of commission paid to him by the company and hence higher expenses. The machine hours or labor hours is another example of variable cost because if the machine is working or labor is working for longer hours then there is higher production and because of the higher production, there will be higher electricity bills and labor wages.
Costs incurred in the tattoo event:
Location rental cost: this will be considered as a fixed cost because this cost is like rent paid for a factory and irrespective of the production level or sales of the goods or services the rent of the factory has to be paid by the user of the property. So it does not depend on the number of people who have visited the event the location rental cost will remain the same. As already mentioned in the comment section, this is a one-time cost so it will be classified in the fixed cost category.
Event staff wages: this will be considered as a variable cost and the cost drivers will be labor hours. This is considered under the variable cost because the number of hours worked by labor may vary because if the event is long then the number of hours the staff will work will be more and hence the salary paid to these workers will be higher. If because of covid restrictions, the event hours are reduced then the cost will be lower because the number of hours of labor working will be less and hence the salary paid will be less. This can also vary if more people show up than expected then the number of laborers will be higher changing the salary cost and if the number of people who showed up is less because of covid restrictions then the number of employees will be less and hence affecting the salary cost of the event.
Decoration cost: the decoration cost is a fixed cost because the venue will be decorated as usual irrespective of the number of people coming to the event.
Additional signage cost: additional signage cost is a variable cost because this cost changes according to the number of stalls installed in the event. If there are more stalls installed then the cost will be higher but if there are fewer stalls installed then the cost will be less. So, this cost depends on the number of stalls installed and hence will be classified as a variable cost. The cost driver will be several setups.
Rock band performer fees: this is a fixed cost because fees paid for an activity are usually a fixed cost. This will be classified under the fixed cost because the fees of the band are fixed; it will not change according to the number of people showing up for the event. The band will play the same for fewer or more people.
Twitter cost: this is a variable cost because the number of posts on Twitter will vary according to the COVID restrictions and the number of people showing up at the event.
Facebook cost: this cost is also variable because it will vary according to the number of posts and states created for the event. If the posts are higher then this cost will be higher and if the posts are less then the cost will also be less.
Advertising pamphlets: this is a variable cost because the number of pamphlets printed will influence this cost. If the number of pamphlets created is more then the cost of advertising pamphlets will go higher but if the number of pamphlets created is less then the cost of advertising will be lower.
If there are 1500 people expected at the event and the total budgeted cost is $1200 then the cost per person visiting will be $800. If one of those visitors is a student then the cost charged to him for a tattoo or a ticket will be $1200 because of differential pricing. The students are only charged 50% of the cost and 50% of the cost will be $1200. If from those 1500 people, one of the people is an adult then the cost charged to him for the ticket will be 1600 because of differential pricing. The differential pricing for an adult is 100% of the cost incurred. If out of those 1500 people, one of the people is a kid the amount charged from him for a ticket will be $ 1000 only because the pricing charged to a kid is only 25% of the cost incurred and 25% of the cost incurred will be $ 1000. If out of those 1500 people, one of them is a senior citizen then the amount charged to him will be $1100 because senior citizens are only charged 37.5% of the cost and 37.5% of the cost is $1100. The standard pricing of the event is $ 2000 because the differential pricing is 150% and the 150% cost is $2000.