Fixed Cost vs Variable Cost

Fixed Cost vs Variable Cost

What is Fixed Cost?

The cost price which remains constant at distinct levels of output manufactured by a firm is referred to as Fixed Cost. They are not influenced by the momentary fluctuations in the pursuit levels of the establishment. To put it in other words, fixed cost is the cost or an expense that does not differ with an increase or decrease in the number of commodities or services manufactured or sold. Fixed costs are such type of expenses that have to be paid by an enterprise, autonomous of any trading pursuit. It is one of the 2 components of the total cost of running an enterprise and the other being a variable cost.

What is Variable Cost?

The cost which differs with the changes in the amount of output manufactured is referred to as Variable Cost. They are directly influenced by the fluctuations in the level of activities of the firm. To put it in other words, variable cost is an expense that differs in proportion with manufacturing output. Variable costs increase or decrease relying upon an enterprise’s manufacturing volume; they rise as production increases and fall as production decreases.

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Basis Fixed Cost Variable Cost
Meaning Regardless of the volumes manufactured, the cost that stays the same is known as a fixed cost. The cost which differs with the changes in the amount of output manufactured is referred to as Variable Cost
Nature Associated with the time. Associated with the volume.
Incurred when? This type of costs are certain, they’re incurred regardless of the units manufactured or not. However, variable costs are earned when the products are manufactured.
Behaviour Remains constant for a given period of time. It changes with the difference in the output degree.
Combination of Fixed administration overhead and allocation overhead, fixed selling and Fixed production overhead. Direct Labor, Direct Material, Variable Production Overhead, Direct Expenses, Distribution Overhead and Variable Selling
Examples Rent, Insurance, Tax, Depreciation and Salary etc., Wages, Packing expenses, commission on sales, material consumed etc.,

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