Difference between Fixed and Variable Costs

Distinguish, differentiate, compare and explain what is the Difference between Fixed and Variable costs. Comparison and Differences.

Managing costs is one of your most critical responsibilities as a business owner. There are fixed and variable costs. Fixed and variable costs have differing impacts on businesses, although both contribute to profitability.

It is useful to define the word volume while discussing costs. Your business's production volume refers to the number of units produced every week, month, or year. Sales volume refers to the number of units sold each week, month, or year. When selling a service, the production and sales volumes are typically the same, as the product is created and sold concurrently. When selling a product, production volume and sales volume may differ due to the possibility of making more than you sell (or selling more than you make with inventory).

Fixed costs

Fixed costs are costs that are unaffected by volume. Fixed costs are dependent on time, not quantity produced or sold by the business. Fixed costs include rent and leasing charges, salary, utility bills, insurance, and loan payments. Some taxes, such as business licences, have fixed costs. When considering adding fixed costs to your small business, keep in mind that you must pay them regardless of sales volume. Fixed costs are commonly referred to as overhead.

Variable costs

Variable costs are those that change as volume changes. Variable expenses include raw materials, piece-rate labour, production supplies, commissions, shipping, packaging, and credit card fees. Some accounting statements refer to variable production costs as "Cost of Goods Sold."

Some businesses may have fixed costs, while others may have variable ones. Fuel is a set cost for a food truck regardless of sales volume, while it is a variable cost for a delivery service like UPS as more products are delivered.

Difference between Fixed and Variable Costs

1. Fixed costs refer to the cost that a firm incurs to employ fixed inputs or factors of production. Variable costs refer to the expenditure incurred by the producer on the use of variable factors of production.

2. Fixed costs are fixed and do not change with a change in output. Variable costs change directly with a change in the level of output.

3. Examples of Fixed costs are Rent of a building, interest on capital invested, salary of permanent staff etc. Examples of Variable costs are Expenditure on raw material, wages paid to casual labor etc.

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Difference between Variable Costs vs Fixed

Fixed vs Variable Costs

Differences between Variable Costs vs Fixed

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