Dmitry Konev 5916697

One of the most important accounting concepts for managers to make short and long-term decisions is cost function. In other words, this concepts helps managers to predict future costs using historical accounting and non-accounting data, assumptions and qualitative factors. This concept helps to estimate costs of goods production, facilitation or other business activities. First, cost is identified as fixed or variable. Fixed costs are not changed when the quantities number of goods or services change, so it will occur whether production occurs and include overhead, administrative salaries, insurance . On the other hand, variable costs depends on the number of units and can include direct materials, labour, sales commissions. This concept is useful for the businesses in case they have enough data to make predictions. Additionally, the cost function is reliable only for relevant range and will change below or above this range. Generally, total cost include fixed costs and variable costs per unit multiplied by units.

For example, we are considering opportunity to celebrate New Year together with classmates and friends in Toronto or Greater Toronto Area. In that case we need to rent a house, to buy food and drinks, to buy fireworks. However, the number of people can be between 10 and 20 people depending on the results of our discussion and other factors such as MBA Games, which started on the 2nd of January. The cost of the house for up to 14 people is $1400 for two nights, when the cost for the house for 20 people is $2000 for two nights. Additionally, we defined that $60 per person will enough to buy food and drinks for 2 days and nights per person. Lastly, the cost of fireworks should not exceed $300 for the total amount.

In comparison, for the range people up to 14 the fixed costs will include the rent fee and fireworks cost and in