Econ Help!!?

Question

Distinguish between a fixed cost and a variable cost

Answer 1

Fixed costs
Fixed costs are those that stay the same in total regardless of the number of units produced or sold. Although total fixed costs are the same, fixed costs per unit changes as fewer or more units are produced. Straight-line depreciation is an example of a fixed cost. It does not matter whether the machine is used to produce 1,000 units or 10,000,000 units in a month, the depreciation expense is the same because it is based on the number of years the machine will be in service.

Variable costs
Variable costs are the costs that change in total each time an additional unit is produced or sold. With a variable cost, the per unit cost stays the same, but the more units produced or sold, the higher the total cost. Direct materials is a variable cost. If it takes one yard of fabric at a cost of $5 per yard to make one chair, the total materials cost for one chair is $5. The total cost for 10 chairs is $50 (10 chairs × $5 per chair) and the total cost for 100 chairs is $500 (100 chairs × $5 per chair).

Click on the link for a diagrammatic depiction of the above.

Answer 2

Fixed is a flat cost you pay regardless of how many hours or units of production you make. Rent is a good example. So also is depreciation and amortization.

Variable cost is usually your production on a per-unit basis. It depends on how many units or hours you spent on a product to get it sold. Prime examples are Cost of Goods Sold, Labor, commissions expense paid to your salespeople, etc.