Difference Between Fixed Cost and Variable Cost
Basis | Fixed Costs | Variable Costs |
---|---|---|
Definition | Fixed costs that don’t change no matter how much is made or sold. Rent, salaries, and insurance fees are some examples. | Some costs change based on how much is produced or sold. Some examples are direct work, raw materials, and variable overhead. |
Behavior with Volume | No matter how many units are made or sold, it stays the same. | Has a direct relationship with the amount of production or sales. Variable costs go up as output goes up, and vice versa. |
One-Time Costs | Usually, one-time costs like buying tools are thought of as fixed costs. Even though they stay the same, as production output goes up, they make up a smaller share of the cost of each unit. | Buying machinery is thought of as a one-time set cost. It’s important to keep in mind, though, that the machinery’s repair costs may change depending on how much it’s used or how much it does. |
Services/Utilities | Services and utilities that come at a fixed cost, such as a monthly subscription fee or rent, are considered fixed costs. They do not depend on the number of units produced or sold. | Services and utilities that vary with production, such as electricity consumption based on output, are considered variable costs. The cost increases or decreases based on the level of production. |