![]() ![]() Depending on where you live and what are your options for heating sources, your electric bill could range from $100/month in milder months (spring and fall) to higher than $300/month during the harshest times in the summer and winter.Ĭhanging climate conditions also affect these already variable expenses. Let’s examine a variable expense almost everyone can relate to: electricity bills or costs. Which also makes them harder to plan for in your annual or month budget. Overhead variable costs – like those listed above – are harder to adjust. Now you can adjust your variable costs of production in response to a downturn in sales or production … in reality they adjust on their own because when production slows down, you stop incurring those costs. Now that we have a pretty solid grasp of the 3 types of expenses in your business, let’s examine a little more in-depth about how variable expenses can affect your business budget. How Do Variable Expenses Affect My Business Budget? You or your CFO must know this number because once you exceed your break-even point, your business becomes profitable. Your company’s break-even point is the quantity of your product you need to sell in order to cover your manufacturing & labor costs for the month. Why is this so crucial? Because your variable costs of production have a direct impact on your break-even point. If you are in the business of making a product, then you need to be aware of the variable costs of production. The bulleted lists above focus on operating costs, but variable expenses apply to your cost of goods sold, as well. Variable Expenses Are More Than Operating Costs Staff parties and bonuses (sorry, employees).Professional services charged by the hour.Automobile usage expenses, like fuel and maintenance.Here are we will cover what are fixed costs, examples of variable expenses, and give you a clearer understanding discretionary expenses, as well: The fit into the “nice-to-haves’ category, which you could still run your business without them. Discretionary expenses are can be thought of as those little extras you enjoy. You need variable expenses to actually run your business. ![]() Examples of Each Type of Business Expense Discretionary expenses change depending on use, too, but they are different from variable expenses. What Is a Variable Expense?Īn expense is a variable expense when its total amount changes in proportion to the change in sales, production, or some other activity.īy comparison, fixed costs stay the same over an extended period of time. It is also helpful to understand the differences between 3 types of expenses that will affect your budget: variable expenses, discretionary expenses and fixed costs. Before we get into the brass tax of how-tos, let’s nail down a little further on what variable expenses are defined as. There is not an exact science to budgeting for variable expenses, but there are some tricks you can use to make sure they don’t throw company’s budget off the rails. The shifting amounts, behind variable expenses, makes planning for them in your business budget more difficult – but not impossible. Variable costs, also known as variable expenses, are expenses that vary or change on a weekly or monthly basis, (unlike fixed costs, which remain the same each month) and they can have an effect on your business’s budget.
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