Question

Explain the difference between fixed and variable costs and give two examples of each. Can a company budget for variable costs? Explain.

Answer 1

Question : Explain the difference between fixed and variable costs and give two examples of each. Can a company budget for variable costs? Explain.

Sol-

Fixed Costs : 
A fixed Cost is a called a fixed price that is constant at different levels of output produced by a company. The slight fluctuations in the level of business activity do not seem to have any effect.

Fixed costs do not mean that they will never change in the future, but they can be fixed again in the short run. Let's look at an example of this: If we were to do business in a rented space, we would have to pay rent for the building, whether we run a business or not, so we call this cost a fixed expense (the cost is constant until the building's rent increases or decreases).

Variable cost :
The variable cost is the change in the result of the cost output you produce. They appear to be affected by their fluctuations in business activity.

Permanent changing prices can be changed permanently, that is, when the product is growing, the variable cost will appear to increase at the same cost ratio, but when there is no production, the price of the changing price is not determined.There are many examples of fixed costs such as rent, salaries, fees, duties, insurance. Examples of variable costs are packing costs, freight costs, material costs, salaries.

Fixed costs are not included at the time of inventory evaluation, but they do include variable costs.

Try to keep fixed costs as low as possible in the business, and it may be worthwhile not to commit to variable costs, when you decide to start a business. In the beginning or during the first year, your business will have a lower income limit as long as you build a customer.