Business

Difference between variable costs and fixed costs

Main Difference

Economics is the branch of science that deals with the factors that determine the production, distribution, and consumption of things that are produced by different companies and organizations. It is about studying human behavior in which it creates a relationship between society and the resources available to them and how they use them to meet demands. There are many terms involved in this field that can be confusing for people who do not know much about economics. Some of these terms are very similar to each other, while others are completely different. The ones that will be discussed in this space are Variable Costs and Fixed Costs. They are both different from each other, and that can be assumed just by looking at the names. To make the variations more apparent, we need to look at the definitions. In simple words though, Variable costs are those that change the way a business operates. For example, if the material cost was lower a month ago and now it has increased, then the total quantity of the product will also increase since the raw material that is purchased has a variable cost. On the other hand, fixed costs are those that remain constant throughout the process. It does not depend on the international market and it is up to the company to ensure that they do not change over time. In more complex terms, fixed costs are those that do not change with the change in the amount of materials that are produced or sold. Variable costs are those that change constantly with the amount of material that is produced or sold. The best examples of a fixed cost may include costs such as rent, electric bill, machinery and buildings. The best examples of variable costs include payments made to employees, utilities, and materials being used. In real life, a good example might be the fact that if you call someone, the costs are different for different networks. If you call the same network the costs will be the same, if you hand over to another network it will be different. Similarly, if you use an individual package, the total amount of money spent will remain the same no matter which system I called. There are also many other differences between these two languages ​​that will be discussed at the end, while a brief description of both types is given in the next two paragraphs. utilities and materials being used. In real life, a good example may be the fact that if you call someone, the costs are different for different networks. If you call the same network, the costs will be the same, if you give the word to another network, it will be different. Similarly, if you use an individual package, the total amount of money that will be spent will remain the same no matter which system you call. There are also many other differences between these two languages ​​that will be discussed at the end, while in the next two paragraphs provides a brief description of both types. utilities and materials being used. In real life, a good example might be the fact that if you call someone, the costs are different for different networks. If you call the same network, the costs will be the same, if you give the word to another network, it will be different. In the same way, if you use a stand-alone package, the total amount of money spent will remain the same no matter which system you call. There are also many other differences between these two languages ​​which will be discussed at the end, while the next two paragraphs offer a brief description of both types. it will be different. Similarly, if you use an individual package, the total amount of money that will be spent will remain the same no matter which system you call. There are also many other differences between these two languages ​​that will be discussed at the end, while a brief description of both types is given in the next two paragraphs. it will be different. Similarly, if you use an individual package, the total amount of money that will be spent will remain the same no matter which system you call.

Comparison chart

Variable costs Fixed costs
Definition The amount of money spent on a company depends on different factors. the amount of money a business has to spend regardless of changes in the number of people hired or the success of the business in producing fewer or more goods.
Employees They are the ones who change the way a company works It is the people who remain constant throughout the process.
Example The amount of material that is purchased, the wages that are paid to employees. Rental, machinery, construction, advertising and insurance.
real life situation A phone call made on different networks can be referred to as a real life example. The phone call made on the same system for the same price can be referred to as an example.

Variable Cost Definition

A variable cost is the amount of money a company spends on different factors. It is not constant and continues to change with variations in the factors associated with buying and selling. They change if the firm produces fewer or more goods. If a company is creating more products, the number of variable costs will increase since some salaries given to employees will have to increase, and the total amount of material that has to be purchased will also have to be greater. If production is less, then some variable costs will be less. There are many areas that can be included in variable costs. They can be influenced by the material being purchased, if the content requires changes then the total amount of the company will also change. This may also have the wages that are paid to the employees. If the company starts to produce more, it will need more workers and invariably more money will have to be spent. Knowing that the product is being produced more, the packaging costs will also be higher since all things have to be shipped to the market in the best possible scenario.

Definition of fixed costs

A fixed cost is the amount of money a business has to spend regardless of changes in the number of people hired or the success of the business in producing fewer or more goods. Many factors can be considered a fixed cost, but the main ones are rent, machinery, buildings, advertising, and insurance. It does not change with the increase or decrease in the quantity of goods sold in the market. The amount must be paid no matter what the situation is. If you have a building that is leased to a business, you will have to pay the rent as the agreement was signed. If it is an operating expense that cannot be avoided. They are usually broken down into different factors to analyze how the company is doing. Changes to these costs cannot be made until a major problem arises. The total expense of a company has a large part of fixed costs and a smaller amount of variable expenses. Different analyzes have to be done to decide if an expense can be qualified as fixed or variable and the best example of this can be employee insurance, which has to be done even if the company is producing less.

Differences in a nutshell

  1. Variable costs are those that change the way a company works, while fixed costs are the people that remain constant throughout the process.
  2. Fixed costs do not depend on the international market, while a variable cost depends on the market and the changes that occur.
  3. The best examples of fixed costs include rent, machinery, buildings, advertising, and insurance. The best example of variable costs involves the amount of material that is purchased, the wages that are paid to employees.
  4. A phone call made on different networks can be referred to as a real-life example of variable costs, while a phone call made on the same system for the same price can be referred to as a fixed cost example.

Final Thought

There are many forms of activities that can be done in the business industry and the two terms that have been explained here are similar, the people who want to do their business and those who want to explore the business side more will find this article really useful and know the differences. among them.

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