Fixed Cost Paper

Managers put such a great deal of emphasis on controlling fixed cost in their organizations because fixed costs can decrease per unit if the number of units increase, up to an extent (Edmonds, Tsay, & Olds, 2011). Fixed costs are the costs that remain unchanged regardless of an increase or decrease in the number of units sold (Edmonds, Tsay, & Olds, 2011). Therefore, if the number of units sold increases, the total fixed costs is distributed throughout the total number of units sold (Edmonds, Tsay, & Olds, 2011). As a result, the fixed cost per a unit decreases (Edmonds, Tsay, & Olds, 2011). If the number of units sold decreases, the total fixed costs is distributed to a few units only (Edmonds, Tsay, & Olds, 2011). As a result, fixed cost per a unit would increase (Edmonds, Tsay, & Olds, …show more content…
Managers are not able to decrease the variable cost per a unit, managers focus more to control their fixed costs (Edmonds, Tsay, & Olds, 2011). The basic assumption for most organizations is to lower the cost to increase the net income (Edmonds, Tsay, & Olds, 2011). If decreasing the variable cost is difficult for an organization, the manager may try to decrease the fixed costs (Edmonds, Tsay, & Olds, 2011). Therefore, a manager will put a great deal of emphasis on controlling fixed cost in their organizations (Edmonds, Tsay, & Olds, 2011). When all costs are fixed, and revenues have covered fixed costs, each additional dollar of revenue represents pure profit (Edmonds, Tsay, & Olds, 2011). Having a fixed cost structure offers an organization both risks and rewards (Edmonds, Tsay, & Olds, 2011). If sales volume increases, costs do not increase, allowing profits to soar (Edmonds, Tsay, & Olds, 2011). Alternatively, if sales volume decreases, costs do not decrease, and profits decline significantly more than revenues (Edmonds, Tsay, & Olds,