Variable Cost vs. Fixed Cost: What’s the Difference? [Video]

Fixed costs are expenses that remain the same no matter how much a company produces, such as rent, property tax, insurance, and depreciation. Variable costs are any expenses that change based on how much a company produces and sells, such as labor, utility expenses, commissions, and raw materials.

Fixed costs are normally independent of a company’s specific business activities. Variable costs increase as production rises and decrease as production falls. Understanding the difference between these costs can help a company ensure its fiscal solvency.

Variable costs are any costs that a company incurs that are associated with the number of goods or services it produces. A company’s variable costs increase and decrease with its production volume. When production volume goes up, the variable costs increase.

But if the volume goes down, the variable costs follow suit. If a company has a product line that is underperforming or outdated, it may choose to stop production of that line. The costs associated with this product are …