Video: Variable and Fixed Costs

Dive into the world of cost behaviors with Nick Palazzolo, CPA, as he breaks down the differences between variable, fixed, and semi-variable (or mixed) costs. He walks through some common examples, including sales and returns, direct materials, and indirect labor, clarifying which costs fluctuate with production levels and which remain constant. Mixed costs are demystified as having components of both variable and fixed costs, with practical examples that make it easy to grasp the concepts. Nick's approach ensures that the intricacies of cost categories are understood in a simplified manner, leaving you feeling confident and prepared. Keep the motivation high with Nick's encouragement as he reassures you of the success that lies ahead with time and perseverance.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Cost behaviors. Now, you don't have to memorize this, but for sure take a look at it, be familiar with it. I mean you will be quite familiar with this as time goes on. This is just a chart to dictate to you examples of variable cost, examples of fixed costs and examples of semivariable costs. So within variable costs, well, we've got sales and returns allowances. Sales are variable. The more units you sell, the more sales you're going to make. Direct material. The more sales you make, the more units you produce, the more material and labor you will use. Indirect labor is semi-variable.

And what does semi-variable mean? Well, variable just increases as production increases, fixed stays the same and semi-variable has a component of both, right. You can think of this like mixed costs or you could also think of this as just fixed to a certain point, right. And then variable, which I guess is just mixed costs. So yeah, I'll just call it mixed costs. Yeah, semi-variable. It depends. Right. That is what we would see for indirect labor. We've got fringe benefits. Those are just benefits offered to employees. Maybe we got health care, we got different HSA accounts, anything like that. Royalties, maintenance and repairs of building. Yeah, just take a look. I'm not going to go through every single one.

Should make relative sense. Depreciation, straight line depreciation is fixed. Electricity could be fixed overall for just keeping the lights on. But then variable, depending on how many units you make, scrap and spoilage, normal variable costs. If you don't produce at all, you're not going to make any costs. So that's variable. Variable and fixed. Well, sales commissions. You pay commissions out as they make more sales. Officer salaries, generally fixed. I

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