[Commerce Class Notes] on Difference Between Fixed Cost and Variable Cost Pdf for Exam

Students of Commerce to various concepts that are both theoretical yet practical as they are to do with personal and professional finance. If we put our minds to it, we will surely learn a lot! This section deals with the topic of fixed cost and variable cost. 

Whether you are part of a company or run a business yourself – cost is a fundamental brick without which no company can ever run! It is the total monetary value incurred by a company for the purpose of manufacturing products or ensuring its services reach the target audience. 

Fixed cost remains unmoving for a long period of time while variable cost keeps changing based on the expenditures and assets of the company. 

You will know you have understood these two concepts well when you are able to differentiate between fixed and variable cost in a given set of data.

Fixed Cost

The fixed cost is more or less an independent variable. Irrespective of the productivity or operations of a company, these costs have to be borne by the business at all periods of time. For instance, the commercial rent for the structure occupied by the company is an ideal example of fixed cost. It has to be paid by the company throughout its period of functioning, irrespective of whether it is making profits or not. 

These costs may rarely be subject to changes. They are usually constant over a long period of time.

 Variable Cost

The variable cost as opposed to the fixed cost is dependent on the operations and productivity of the company. A few instances of variable cost include the salaries, utility bills, manufacturing costs and so on. Naturally if the production of the company is at a low, variable costs will be lower. However if the company is running in a full swing, the variable costs will be equally high. 

Fixed and variable costs are an essential part of running an organization. But both need to be monitored and kept within their limits. If they exceed a set target, it could prove to be detrimental for the operations of a company.