The paper "The Nature of Resource Cost Structure" is a good example of finance and accounting coursework. Production is an important function in economics. The process of production involves converting factors of production into outputs. The outs are valuable to the organizations. An organization has to incur costs during the process of converting the factors of production into outputs. A firm can incur different types of costs and they influence the production process of the company (Shafiee, Finkelstein & Chukova, 2011). Some of the costs may be fixed while others are not fixed.
As a result of the cost, an organization may end up making profits or losses. It is important to note that the higher the production costs, the lower the profitability of a business. Any profit-making organization has to ensure that the costs are low. A non-profit making organization may not be able to sponsor its activities to incase of high costs. The paper discusses the cost structures and their practical significance. Discussion Fixed costs are some of the important costs that an organization has to incur. The fixed costs involve the amount of money that an organization has to spend to produce something that is not related to the amount of the product.
The fixed costs in most cases are usually referred to as sunk or overhead costs. The capital of the company is one of the aspects of the fixed costs of an organization. This is considering that every organization must have capital. The fixed costs may also be explained as the amount of money that an organization has to spend before producing anything (Shu, Li & Zhong, 2012). This means that the costs are constant and the organization must incur the fixed cost as long at is in operation.
The fixed costs are also incurred by an organization regardless of whether it is making profits or not. The fixed cost may also involve the infrastructure that an organization has to put in place when established the business. The fixed costs may, therefore, require maintenance from time to time. The fixed costs are relevant to an organization as it determines the input that an organization has to put in place in order to run its operations.
Depending on the size of the firm, the fixed costs may be high or low. It is also important to note that part of the fixed costs may be recovered by a firm in case it decided to close down it. The fixed costs are therefore important to an organization as an organization cannot operate without the fixed costs. The variable costs also form part of important costs in the cost structure of a firm. The variable costs are the cost that changes with respect to the quantity produced.
The variable costs increase when the production is high and it reduces when the production is low. The variable costs mainly involve the non-capital factors of production. The non-capital factors of production include labour, materials and energy. The labour, or amount of materials used for the production process usually change from time to time depending on the amount that needs to be produced. The variable costs are dependant on the supply and demand. The variable costs within a firm may increase when the demand for its products is high (Yamamoto, 2011).
This is because the organization will be forced to produce more in order to meet the demands of the customers in the market. On the other hand, it is also important to note that the variable costs may also impact negatively on the profitability of an organization. The higher the variable costs the lower the profitability of an organization. However, it is important to note that some forms of variable costs may also be considered fixed costs as they do not change. This may involve some form of labour in the organization that is constant and does not change regardless of the production.
The variable costs are relevant to an organization in terms of establishing the amount that needs to be produced. A firm should monitor the variable costs in order to respond appropriately to the supply and demand.