OK now that you've had a chance to look at the numbers, let's get right into them. Let's assume that we are all accountants for Morgana manufacturing company and that we manufacture high-quality furniture like tables etc.
OK let's assume in this example that Morgana manufacturing company produces tables. Product cost, all product cost can be categorized into three subgroups, direct material DM, direct labor DL, manufacturing / factory overhead, I use both the terms because some text books use factory overhead, and some text books use manufacturing overhead.
OK, let's pay attention now to fixed cost. So if we assume that the fixed cost we have is rent, rent of $1,000 a month. Again let's assume we will be paying a rent of $1,000 a month. So if we have to pay rent at $1,000 a month, let's see what would be the behavior pattern of unit fixed costs and total fixed costs as we change the volume of tables manufactured.