Question

Would you classify Sales Commisions as a regular avoidable cost because it’s a variable cost? Or a fixed avoidable cost? Working a Keep or Drop problem. Is it always assumed that sales commissions differ based on sales, making it variable?

Answer 1

Any expenses that varies based on some factor are called a variable cost and these variable cost can be easily controlled and avoided if some other alternative methods are implemented.

Since sales commission is paid on the actual sales, this is treated as a avaoidable variable cost. If some other methods are used instead of giving sales commission to increase the sales than this is possible to turn this cost to zero.

Unlike these variable cost fixed cost is that cost that is to be incurred even if there is no activity during the period. Such costs are the rent and salaries. Even if there is no activity these expenses are to be incurred.

Since the sale commission is paid as a percentage of sales and this varies, this is treated as a avoidable variable cost.

This commission is not variable just because the total amount that we pay in every month is different, this is considered to be variable because this expense will be zero if there is no activity that is sale and purchase.

Hence sales communion is variable avoidable cost.