University of Phoenix
MMPBL 503/Introduction to Finance and Accounting
June 7, 2009
To: Human Resource Managers
From: Susan Gallagher, Consultant
Human Resource managers may benefit from an understanding of how costs affect the department budget as well as the overall company budget, since human capital is often one of the most costly aspects of operating a business. An important element in understanding budgetary issues lies in the knowledge of key concepts useful in determining costs. Without a clear understanding of such concepts, a manager is at a fiscal disadvantage in his/her attempts at managing budgets.
Costs include any items paid for or obligated for payment towards purchases to operate the business. On an income statement, costs appear as decreases in assets or increases in liabilities. Managers should be concerned with detailed information related to the costs of production and business activities in order to make appropriate decisions. Therefore, managers without a primary background in finance and accounting should possess a minimum knowledge of key concepts such as variable costs, fixed costs, semi-variable costs, sunk costs, actual costs, etc. I have provided a brief summary for your review.
Variable costs consist of costs that may vary or change as company activity changes. In our company, these costs could include increased transportation costs resulting from increased home visits, trainings, conferences. Generally, when a company does more business, variable costs increase with the opposite also remaining true. Often variable costs are associated with volumes of raw material, labor costs and sales commissions (Block-Hirt, 2004, ).
Unlike variable costs, fixed costs remain constant, independent of total production. They are not associated with changes in business activity. Examples of fixed costs include executive’s salary, monthly leases on equipment, loans and interest on buildings...