Fixed Cost vs Variable Cost

Fixed Cost vs Variable Cost

Fixed Cost Meaning

Fixed cost is referred to as that cost which does not register a change with an increase or decrease in the quantity of goods produced by a firm. Fixed costs are those costs that a company should bear irrespective of the levels of production.

Fixed costs are less controllable in nature than the variable costs as they are not dependent on the production factors such as volume.

The different examples of fixed costs can be rent, salaries, property taxes.

Must Read: What is the Average Fixed Cost?

Variable Cost Meaning

Variable cost is referred to as that type of cost that will show variations as per the changes in the levels of production. Depending on the volume of production in a company, the variable cost increases or decreases.

The various examples of variable costs are cost of raw materials that are used for production, sales commissions, labour cost etc.

Also Check: How to Calculate Total Variable Cost?

This article is a ready reckoner for all the students to learn the Difference between Fixed Cost and Variable Cost.

Fixed Cost

Variable Cost

                                                                Definition
Fixed cost is referred to as that cost which does not register a change with an increase or decrease in the quantity of goods produced by a firm Variable cost is referred to as that type of cost that will show variations as per the changes in the levels of production.
                                                            Nature of Cost
It is time dependent and changes after a certain time period It is volume dependent and changes based on volume produced
                                                        How are they incurred?
Fixed costs are incurred irrespective of any units are produced or not Variable costs are incurred as and when any units are produced
                                                        Does it change with the number of units?
Fixed cost decreases with increase in number of units produced Variable cost remains same irrespective of number of units produced
                                                          Impact on Profit
Higher production results in reduced costs which increases profits There is no impact on profit with the level of production
                                                            Examples
Rent, Salaries, Property taxes Labour cost, cost of raw materials, sales commissions

 

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The above mentioned is the concept, that is elucidated in detail about ‘Difference between Fixed Cost and Variable Cost’ for the Commerce students. To know more, stay tuned to BYJU’S.

Also Read: Tips to Study Economics

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