Question

What is the difference between variable and fixed costs in the context of total cost and per unit costs? Provide examples. short answer

Answer 1

Difference between variable and fixed cost

	Variable cost	Fixed cost
IN TERMS OF TOTAL	Total variable cost changes with the change in level of production.Total variable cost is calculated by variable cost per unit multiplied by number of units produced. For eg--- variable cost per unit of chocolate is 15, and 10000 units are produced. Then total variable cost will be 15*10000=150000. But if 5000 units are produced then total variable cost will be 15*5000=75000.	Total Fixed cost remains constant at all levels of production, i.e change in level of production does not impact the total fixed cost. For eg---- If total fixed cost for producing 10000 chocolates is 100000, then it will remain same at all levels of production even if company produces 5000 chocolates.
IN TERMS OF PER UNIT	Per unit Variable cost remains same or constant. For eg--- variable cost of one chocolate is 15 , so whether company produces 10000 or 5000 chocolates, it's per unit Variable cost 15 will be same.	Per unit Fixed cost varies since it is calculated as total fixed cost divided by total number of units produced. For eg--- Total Fixed Cost is 100000, and 10000 chocolates are produced. Then per unit Fixed cost will be 100000/10000=10 per unit. But if 5000 chocolates are produced then per unit Fixed cost will be 100000/5000=20 per unit