Fixed Expenses are costs that remain the same every year, they remain unchanged, they do not vary or alter depending on the activity of your business.
Variable Expenses are costs that are not fixed, they vary directly and proportionately with the level of activity in your business, i.e., the number of sales that you make.
Semi Variable Expenses, also referred to as Mixed Costs are part Variable and part Fixed. Semi Variable Expenses change in response to a changed level of activity, but the change is not proportionate like with Fixed Expenses.
By having a better understanding of what expenses in you business are Fixed, Variable or Semi Variable you will be better place to produce financial statements that give you an accurate Gross Profit (Contribution Margin) and Net Profit measurement.
Examples of Variables Expenses:
- Direct materials
- Direct labor
- Commissions
- Billable contractors
- Courier costs
Examples of Fixed Expenses:
- Insurance costs
- Rent
- Wages and Salaries
- Interest expenses
- Light and Power
Examples of Semi Variable Expenses:
- Certain wage costs
- Telecommunication costs
Once you can accurately determine these you should be able to establish your break even point.
If you would like to discuss further please contact us:
McNamara & Company - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com
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