Cost Analysis: Categorical Descriptions and Thesis

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The raw materials needed as ingredients for detergents require extraction from natural resources, and extraction costs increase as the amounts needed rise. This means that it costs more to use more materials and thus produce more detergent, making materials a variable cost. The factory where the ingredients are mixed into detergent, however, would cost roughly the same to build whether the plan was to produce 100 or 10,000 units per day -- as this cost does not increase as production increases, it is a fixed manufacturing cost. Energy is semi-variable, in that it would require a significant amount of energy for the factory to operate at all, even if it was only producing one box of detergent a day. At the same time, the factory would certainly use less energy producing 100 boxes than it would producing 10,000.

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The total cost of producing laundry detergent takes all of these costs and others, including government inspections, taxes, and fees, employee's pay, and more, into account. Determining the true cost of a single box of detergent, then, becomes a fare more complex cost than might be thought. The cot of the raw materials used per box is easy to calculate; these raw materials are a direct cost of the unit of detergent. In the same way, the amount of time necessary for an employee to inspect a box is directly related to each unit, and is thus a direct cost. The energy supply, however, as well as the taxes and inspection fees, administrative salaries, maintenance costs, etc. are not directly related to the number of units being produced,….....

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