The Problem of Fixed Charges.

Abstract This article focuses on the problem of fixed charges in cost accounting. Fixed costs may be defined as those costs which remain practically unchanged in total amount when physical volume of output is varied. Such costs are not controllable by management, for their total amount is independent of circumstances which can be altered by executive decision. Most of these costs are fixed only within a certain range of output and become variable when greater ranges occur. To control costs, management needs information concerning controllable costs: which costs are controllable, what these costs should have been and what they actually were, as well as why the variances occurred. To determine the adequacy of selling prices, management needs to know total costs and product variable costs. Total costs will provide information as to the over-all adequacy of selling pikes. Variable product costs will provide information as to the adequacy of selling prices of individual products and, provide a guide for minimum selling prices. Thus management is concerned with both fixed and variable costs.