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Understanding Variable vs. Fixed Costs

The document explains the distinction between variable and fixed costs in business. Variable costs fluctuate with production levels, while fixed costs remain constant regardless of output. Understanding these categories is crucial for effective budgeting, pricing, and financial planning.

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dharmanaleelambaradatta
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16 views5 pages

Understanding Variable vs. Fixed Costs

The document explains the distinction between variable and fixed costs in business. Variable costs fluctuate with production levels, while fixed costs remain constant regardless of output. Understanding these categories is crucial for effective budgeting, pricing, and financial planning.

Uploaded by

dharmanaleelambaradatta
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Dharmana Leelambara Datta

Variable and Fixed Costs


Business costs are generally categorized as either
variable or fixed. Understanding these categories
helps businesses manage expenses more efficiently.
Understanding the distinction between variable and
fixed costs is essential for budgeting, pricing, and
financial planning in any business.
Variable Costs
Variable costs change directly with the level of production. If
you produce more, you pay more.

Examples:
Ingredients for making products (e.g., dough, cheese,
toppings for pizzas)
Packaging materials
Direct labor costs (if labor hours increase with production)

Key Point: If you produce one more unit, variable costs are
the additional expenses incurred to make that extra unit.
Fixed Costs
Fixed costs remain constant, regardless of how
much is produced. These costs do not fluctuate
with production volume.

Examples:
Rent for the building
Salaries of full-time workers
Utilities like electricity and gas
Equipment depreciation

Key Point: Fixed costs are consistent, even if no


additional units are produced.
🙏 Thank you for exploring the fundamentals
of business knowledge!
📚 Stay tuned for more insights in our series
on key business metrics and strategies.

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