Question 1 Budgeting Fixed and flexible budgeting in an organization

D) Difference Between Relevant Cost and Irrelevant Cost

Variable Costs
Any expenditures incurred by a business that are tied to the volume of goods or services it provides are referred to as "variable costs." Variable expenses fluctuate with a company's output volume. Variable costs rise as manufacturing volume increases. In the event of a decrease in volume, however, the associated variable costs will also rise. Variable expenses include, for example, those listed above:1
By multiplying the total output by the variable cost per unit of production, you may determine variable costs for a certain period of time. In this scenario, ABC Company makes $2 ceramic mugs. The company's variable cost will be $1,000 if it produces 500 units. Even if the firm doesn't make any mugs, it won't be burdened with any production-related variable expenses. It will cost $2,000 each device if the firm makes 1,000 of them.
For this reason, it's pointless to compare the variable costs of a vehicle manufacturer with those of an appliance manufacturer. This is because variable costs vary per industry. This is due to the fact that their output isn't equivalent. 1 In order to compare the variable expenses of two firms, it is important to select companies in the same field.
Fixed Costs
In the absence of any output, the fixed expenses stay constant. As a result, a business cannot avoid incurring ongoing expenses. As a result, unlike variable costs, which fluctuate with the amount of output, a company's fixed costs are not directly related to the manufacturing process.
Lease and rent payments, property tax, certain wages, insurance, depreciation, and interest payments are all examples of fixed expenses.
Let's go back to the previous example to show you what I mean. Let's pretend that the machine that makes mugs for Company ABC costs a fixed $10,000 per month to rent. Regardless of whether or not the firm makes any mugs in a given month, it must still pay the $10,000 rental fee for the machine. In other words, its fixed costs stay constant, no matter how many mugs are produced by it. As you can see, the cost of goods and services goes from 0 to $2 million.
Running a business necessitates the payment of several expenses. Fixed, variable, operational, sinking and other expenses are all examples of several sorts of expenditures. The relevant expenses and the irrelevant costs are two of the most important costs to keep an eye on. Both of these prices have a significant discrepancy.