Cost Descriptors Memo

Running Head: Cost Descriptors Memo

Cost Descriptors Memo

Memo

To: Human Resource Manager

From:

Date: 5/11/2008

Re: Understanding descriptors cost in the current budget discussion

The Human Resources Department has been struggling to understand current budget discussions and how the cost affects the budget. When engaging in a budget discussion it is very important to be able to understand the various terms that are used. The cost can be defined as an amount paid or required in payment for a purchase. The purpose of this memo is to identify and define the various terms used to describe cost. The terms that will be specifically addressed are fixed, variable, indirect, direct and sunk costs and a few more. There will also be examples provided to eliminate any confusion.

FIXED COSTS: The fixed cost is defined to be, cost that does not change in proportion to the activity of a business within range of productivity. An example of fixed cost would be the set amount that a person of sales would have to pay for utilities and property payments regardless of the amount of sales that is produced.

VARIABLE COSTS: A variable cost is defined as an uncontrolled expense that is decided by productivity, material distribution and necessary business expenses such as rent utilities insurance and also utilities. The fuel that it takes for a company car can not be predetermined due to the fact it all depends