Difference Between Fixed Costs and Variable Costs
Fixed costs are those costs which do not vary with volume of output and hence fixed are defined in terms of time like per day, or per month, or per year. So for example if fixed cost of a company is $2000 then if company produce whether 500 units or 1000 units total fixed cost will remain same but cost per unit will be $4 if company produces 500 units and $2 if company produces 1000 units. Fixed costs examples are salary of supervisors, rent, taxes etc….
Variable costs are those costs that changes directly with the production and hence they are defined in terms of units. So for example if direct material cost is $2 per unit and if company produces 500 units then total cost will be $1000 and if company produces 1000 units then cost will be $2000. Examples of variable cost are direct labor, depreciation on machinery, factory power etc…..
It is important to note that total fixed costs remain same but per unit fixed cost keeps changing while in case of variable costs total variable costs keeps changing depending on the level of output but per unit variable cost remains constant.