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Rakhi Vasavada
Rakhi Vasavada, Financial and Legal Consultant
Category: Finance
Satisfied Customers: 4434
Experience:  Graduated in law with Emphasis on Finance and have have been working in financial sector for over 12 Years
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Explain the difference between fixed and variable costs per

Customer Question

Explain the difference between fixed and variable costs per unit AND in total. Provide an example to support your explanation.
Submitted: 5 years ago.
Category: Finance
Expert:  Rakhi Vasavada replied 5 years ago.

Dear Friend,

 

All the costs faced by companies can be broken into two main categories: fixed costs and variable costs. Fixed costs are costs that are independent of output. These remain constant throughout the relevant range and are usually considered sunk for the relevant range (not relevant to output decisions). Fixed costs often include rent, buildings, machinery, etc.

 

Variable costs are costs that vary with output. Generally variable costs increase at a constant rate relative to labor and capital. Variable costs may include wages, utilities, materials used in production, etc.

 

For Example, if cost of product is $100, and if out of which $50 is towards buildings / plant and machinery, then it is fixed cost and if the remaining $ 50 is towards utilities, raw materials, etc, then its variable cost.

 

I am sure this would help...

Warm Regards,

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