Fixed Cost vs Variable Cost

Fixed Cost vs Variable Cost

Fixed cost: Meaning

Fixed cost is referred to as the cost that 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, and property taxes.

Must read: What is the average fixed cost?

Variable cost: Meaning

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

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

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 the cost that 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 the 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 period of time. It is volume-dependent and changes based on the volume produced.

How are they incurred?

Fixed costs are incurred irrespective of any units produced. Variable costs are incurred as and when any units are produced.

Does it change with the number of units?

Fixed cost decreases with an increase in the number of units produced. Variable cost remains the same irrespective of the number of units produced.

Impact on profit

Higher production results in reducing the costs and increasing the profits. There is no impact on profit with the level of production.

Examples

Rent, salaries, and property taxes Labour cost, cost of raw materials, and sales commissions

 

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The mentioned concept elucidates in detail about the difference between fixed cost and variable cost for the commerce students. To know more about such interesting concepts, stay tuned to BYJU’S.

Also Read: Tips to Study Economics

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