Answer to Question #179520 in Accounting for antea

Question

Hi, I am writing my Management Accounting assignment and I need to show Fixed and Variable costs of a business. I am using a dropshipping model for business and I have a cost of Shopify transaction cost per order, which is 2.9%+0.3 USD, so when a customer buys a product of 79.99 USD , I will get charged by Shopify - the transaction cost, which will be 2.62 USD. Now, I wonder where to put that cost. At first I put it in Fixed costs because I was thinking it doesn't depend on production so it shouldn't be in Fixed. Now, I put it in Variable because if I "sell" a few products more a month , the amount of transaction cost is growing. I don't know what to do, PLEASE HELP ME :(

Answer 1

Solution:

A fixed cost is a cost that does not change with an increase or decrease in the amount of goods or services produced or sold. Fixed costs normally remain the same no matter how many sales you make.

On the other hand, a variable cost is a cost that vary in proportion to the volume of goods or services that a company produces or sales. Variable costs are costs that vary depending on the volume of activity. The variable costs increase as the volume of activities such as sales or production increases and decreases as the volume such activities decreases.

Transaction costs are examples of variable costs, since they increase or vary with the proportion of sales made to customers. Therefore, you should treat the transaction costs as variable costs and not fixed costs. Fixed costs do not change no matter the sales made to customers.