Wes bounced down the stairs and announced to dad he would be needing help with homework.  He then made a casual bypass through the kitchen for a snack before plopping down on the couch beside dad.  Wes asked, "Dad, I need to write a paragraph for school about the difference between fixed and variable costs...do you have an example I could use?" 

Dad smiled with appreciation, turned the TV off and shifted his eyes upward in thought.  With a little hum he responded, "Actually Uncle Wayne's cows come to mind." 

Wes' face scrunched as if to show a lack of approval and said, "Dad, I don't want to write about cows.  What do they have to do with costs anyway. 

With a slight sarcasm dad replied, "Uncle Wayne's cows weren't pets...they were part of his business as a farmer which directly involved both fixed and variable costs.  Do you want my help or not?"  Reluctantly, Wes nodded yes.  Dad continued, "Uncle Wayne operated a cow-calf operation, which means he raised calves and sold them into the market place when they matured.  There are a number of fixed costs associated with raising cows, such as the property, all the fencing and the labor. 

Wes asked, "Labor...you mean workers?" 

Dad replied, "Yes, remember there were two workers named Clayton and Jim who helped Uncle Wayne on the farm."  Wes tapped his memory and acknowledged with a nod yes.  Dad continued, "So those costs are considered as direct.  Now the variable costs represent things such as the feed provided to the cows.  The feed amount and cost varied with the volume and size of the cattle.  This is really a usable definition of variable cost as the cost is contingent on specific and multiple factors." 

Wes jotted some random things on a piece of paper and replied, "Ok, so the fixed cost is the barn and other things used in keeping the cows and variable costs change depending on how many and how big the cows are." 

Dad smiled and said, "That's perfect the way you said it.  Can you remember that to write your paragraph?"  Wes nodded and hopped off the couch.  As he scurried up the stairs, he stopped mid-way and asked, "Did Uncle Wayne make a lot of money with his cows?" 

Dad, looked back at Wes and replied, "Actually, yes but it wasn't easy.  The variable cost feed was very expensive and represented about fifty percent of the total cost of each cow.  However, do you want to hear Uncle Wayne's secret for cow success?"  Wes turned around on the stairs and raced back to the couch."  Dad continued, "Uncle Wayne leveraged his fixed costs and reduced his variable costs by supplementing his cow-calf operation with another form of cattle raising known as the stock method.  This method purchased adolescent cows in the spring and used the natural pasture grass and hay to feed them until they were ready for sale in the fall.  The pasture, the pasture grass and the hay were already costs involved in the operation of Uncle Wayne's farm.  He leveraged these fixed costs for another purpose to make money that was a complement to his traditional cattle business. 

Wes responded, "So Uncle Wayne increased his margin on the two types of cow operations he ran?" 

Dad replied, "Yes, it makes "udder" sense...doesn't it?" 

Wes replied, "Dad, you are good with helping me with my homework, but bad at telling jokes!" 

Dad replied, "Oh ya, well why don't you "mooove" on upstairs!"