Let’s take a look at some of the main differences between fixed and variable costs:
Criteria Fixed Costs Variable Costs
Meaning
A cost that stays the same, regardless of the output produced.
A cost that changes when the output changes.
Nature
Time related.
Volume related.
Incurred
Incurred irrespective of units being produced.
Incurred only when units are produced.
Unit cost
Inversely proportional to the number of units produced.
Remains the same, per unit.
Examples
Depreciation, rent, salary, insurance, tax etc.
Material consumed, wages, commission on sales, packing
When trying to determine whether a cost is fixed or variable, simply ask the following question: Will the particular cost change if the company stopped its production activities? If the answer is no, then it is a fixed cost. If the answer is yes, then it is probably a variable cost.
Difference between Fixed and Variable Costs
5.3.3 Costs: Fixed Vs. Variable: What are Fixed and Variable Costs
Tips
Criteria Fixed Costs Variable Costs
Meaning
A cost that stays the same, regardless of the output produced.
A cost that changes when the output changes.
Nature
Time related.
Volume related.
Incurred
Incurred irrespective of units being produced.
Incurred only when units are produced.
Unit cost
Inversely proportional to the number of units produced.
Remains the same, per unit.
Examples
Depreciation, rent, salary, insurance, tax etc.
Material consumed, wages, commission on sales, packing
When trying to determine whether a cost is fixed or variable, simply ask the following question: Will the particular cost change if the company stopped its production activities? If the answer is no, then it is a fixed cost. If the answer is yes, then it is probably a variable cost.
Difference between Fixed and Variable Costs
5.3.3 Costs: Fixed Vs. Variable: What are Fixed and Variable Costs
Tips
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