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Fixed Costs: Depreciation Expenses, Maintenance and Repairs, Amortization, Insurance, and Taxes - Case Study Example

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Suppose Claire's Antique assets include Antique Furniture for office setup, the Antique car for the transportation purpose as well as the antique computer and telephone for office use. The types of fixed cost that Claire's antique would probably incur are the Depreciation expense, maintenance and repairs, Amortization, Insurance and Taxes…
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Fixed Costs: Depreciation Expenses, Maintenance and Repairs, Amortization, Insurance, and Taxes
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ACC PH 2 DB Suppose Claire's Antique assets include Antique Furniture for office setup, the Antique car for the transportation purpose as well as theantique computer and telephone for office use. The types of fixed cost that Claire's antique would probably incur are the Depreciation expense, maintenance and repairs, Amortization, Insurance and Taxes. These are some of the major fixed cost that will incur while using of these antique assets.
Depreciation Expenses: These are the expenses which incur while using of the fixed assets and we have to allocate a balanced amount of money in each term so that our asset cost is spread over a number of terms or period. (Meigs & Meigs, 1997)
Maintenance and Repairs Expenses: While using these Antique assets we will probably incur these costs as we will have to keep in running the assets and therefore we will need to repair them accordingly as well as make some necessary investment on that asset to maintain it. (Meigs & Meigs, 1997)
Insurance and Taxes: Whether they are new or Antique assets every assets has to be taxed and if we are using these assets for example the antique car we are using we have to pay the insurance on that so that are also considered as fixed cost which will probably incur. Taxes on antique items are a little bit lower as compared to new assets and the charges of insurance that is the Interest rate will probably be lower but the chances of running that assets are lower because risk is high and it can lead towards ineffective productivity. (Meigs & Meigs, 1997)
In my opinion it is not a good idea to uses Claire's assets to convert our fixed cost into variable cost as there are many fixed cost that are not convertible very easily in Claire's antique assets. The reason for not following this strategy is that no business can run without having a certain amount of fixed cost and there are many costs in those assets which can increase our expenses. The other thing about not using these Antiques is that they involve a high risk level which can ultimately affect our effectiveness and efficiency so therefore the use of these assets can be a high risk. Using of these assets might be useful in the short term but it cannot be favorable in the long term and if it could be convertible into variable cost then ultimately our cost of production will increase and our cost per unit will eventually go high. (Hermanson & Edwards, 1992)
This can be a good idea when we use these assets after their completion of their terms or after we depreciate our assets as according to their expected life when the salvage becomes zero or the expected life will become to an end by which we depreciated our assets. After that we will not be charged taxes and insurance on our assets and that would be the best time to use the assets or consider them as variable cost. As a smart manager I will always try to make my company's assets most productive which can lead to effective results and higher profits and that's why I used this technique to make our profits go higher and higher. (Warren, et al., 2001)
References
1. Warren, Carl S. Warren, Reeve, James M. Reeve, Philip E. Fess (2001) Accounting, Thomson South-Western.
2. Robert F. Meigs, Mary Meigs, Mark Bettner, Ray Whittington. (1997), Financial Accounting, McGraw-Hill Higher Education.
3. Hermanson and Edwards. (1992), Accounting Principles, Freeload Press, Inc. Read More
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