![]() These are affected directly by the fluctuations in the activity levels of the enterprise. Variable cost refers to the costs that change with changes in the quantity of output produced. For example, if your fixed cost is INR 10,000 and the output produced in the 1st quarter is 5000 units, for the 2nd quarter it is 3000 units and for the 3rd quarter it is 4000 units, then the fixed cost for the 1st quarter will be 10,000/5000 = INR 2 per unit, for the 2nd quarter will be 10,000/3000 = INR 3.33 per unit and for the 3rd quarter will be 10,000/4000 = INR 2.5 per unit. However, while the total fixed cost remains the same, fixed cost per unit changes. In the case of rent, your fixed cost will change only when your rent increases, decreases or when it gets replaced by another fixed cost like getting your own space on a loan. Fixed costs are hence business capital expenditures from which you derive benefits over a period of time. However, this does not mean that they would remain constant even in the future, but rather that in the short run, they will remain constant.įor example, if you are operating your business in a rented space, in that case, your rent for the space will become the fixed cost because regardless of whether you produce lots of output or no output, you will be required to pay it. These are not affected by the momentary fluctuations in the activity levels of the organization. ![]() Fixed Costs Definitionįixed cost is a cost that remains constant at different levels of output produced by an enterprise. ![]() variable costs, but first, let us go through their individual definitions. This article will take you through the difference between fixed costs vs. ![]()
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