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Introduction:
What would happen if your Human Resource Department had no idea what budget terminology or concepts were? Would that department be effective in their decision making and forecast projections? The HR Department must be well versed in these areas. This paper will explore different terminology and breakdown what each means along with giving specific examples of each. This will help the HR Department to become a more efficient machine for the corporation. Terms included will be fixed costs, variable costs, sunk costs, marginal costs, total costs, direct costs and indirect costs.
Fixed and Variable Costs:
Fixed costs are costs that do not change with respect to production or sales levels. These may include rent, insurance, membership dues, leases, salaries, and loan payments. As business components change, these stay constant. An example of a fixed cost would be commercial loan payments. These payments are the same amount each month until the loan is repaid.
Variable costs are the costs that change in respect to the sales and production levels of a company. These costs include materials, hourly wage employees, utilities, office supplies budget, and inventory. As business components change with demand, variable costs will change to accommodate the situation. An example of a variable cost would be utilities. If a company is using more electricity for the output of their goods in a particular month, the cost will increase. Conversely, if a company slows production, the costs of the electricity used will decrease.
Sunk Costs:
Sunk costs are the costs that have already happened to the business. These costs cannot b ...