Understanding the nature of fixed and variable costs is extremely important to managers. This knowledge is used in planning, making strategic and tactical decisions, evaluating performance, and controlling operations.

Each group member is responsible for one of the following businesses.

a. Retail store that sells music CDs.

***For this project, I am required to use a Memorandum format. Since my topic is retail store that sells music CDS, I must answer the questions below in a memorandum format.

Date: XXXXXX

To: Prof. Huh

From: Group 6 and Students' Names

Subject: Fixed & Variable Cost Project

1. In each business decide what single measure best reflects the overall level of activity in the business and give examples of costs that are fixed and variable with respect to small changes in the measure of activity you have 

chosen

 

2. Explain the relationship between the level of activity in each business and each of the following total fixed costs per unit of activity, total variable costs, variable cost per unit of activity, total costs, and average total cost per unit of activity.

3. Discuss and refine your answers to each of the above questions with your group. Which of the above business seems to have the highest ratio of variable to fixed costs? The lowest? Which of the businesses' profits would be 

most sensitive to changes in demand for its services? The least sensitive? Why?