Knowledge of fixed and variable costs is essential for managing business performance. So accountants must be able to differentiate between these when budgeting or costing.
Fixed costs remain for a business even where no output is produced. Examples here are costs required to keep the business operational such as a factory or the wages of office staff.
Variable costs are costs that increase as output increases, examples being costs that are directly related to the output being produced.
This infographic shows a diagram of the different costs.
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