Time and Costs

Think of prospect time as having two separate parts, the short run and the elongated run. The short run is that stage of time in which positive tackle, resources, and commitment of the firm are predetermined. It is, however, long enough for the compact to vary its output by using more labor and raw materials.  The short run is not a precise phase of time that will be the similar for all industries or even all firms within the same industry. How- ever, all firms making decision in the short run have some fixed expenses, that is, costs that will not change because of the fixed commitments. Examples of fixed costs are interest expenditure, in the clouds expenses, and possessions taxes. Costs that are not fixed are variable. Changeable costs change as the output of the firm changes. Some common examples are raw resources and employee salary.

Although costs are careful fixed in the short run, in the long run, all costs are changeable. Financial accountants there- fore do not differentiate between variable costs and fixed costs. Instead, accounting costs usually fit into a categorization that distinguishes product costs from period costs. Product costs are the total manufacture costs incurred throughout some exacting period and are reported on the profits statement as cost of supplies sold. Production costs would normally consist of substance such as raw direct labor, materials, and developed over- head. Both variable and fixed costs are incorporated in product costs. Period costs are costs that are billed to a time period. Those are frequently referred to as selling, general, and administrative operating cost. An example of a period cost would be the rent on the business headquarters.