What is the difference between fixed and variable cost?


A fixed cost is an expense that remains constant regardless of increases or decreases in a company's production volume, while a variable cost is an expense that may fluctuate based on the amount of goods or services produced by a company. In the world of business, most companies experience a mix of fixed and variable costs in their monthly finances.Examples of fixed costs incurred by a business include rent, insurance, salaries or property insurance. These expenses do not change over the short term and are not affected by production. Examples of variable costs include materials, supplies, labor and certain utilities. These expenses may rise or fall depending on increases or decreases in production volume. If a company wants to increase production, it may decide to purchase additional materials, allow overtime pay for employees and keep its facilities open longer. These factors cause an increase in variable costs.
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What Is the Difference Between Fixed & Variable Costs?
To accurately determine the profitability and viability of your business’ operations you need to have a good working knowledge of the fixed and variable deductions involved. These are the two categories into which all of the business’ costs... More »
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