Question

definition for “Variable Costs”, “Fixed Costs”, mention and explain “Two Subcategories of Variable Costs”, and mention some examples of “Fixed Costs”

Answer 1

Variable Costs

Variable costs are the costs which carry in relation to the production of the output. They remain constant at per unit level but at Output level they keep changing

2 Sub categories of Variable Costs

• Direct Material cost - They are basic raw materials needed for production as per Bill of Material. They are defined in Units of measurement and consumed directly for production
• Direct Labor cost - Labor cost directly associated with production . They are directly deployed in production. Hours are defined for production and labor rate per hour is given
• Variable Manufacturing Cost - These are the costs which vary in relation to production. Some manufacturing costs vary in relation to production like maintenance, utilities,etc

Fixed Costs:

Fixed costs are the costs which keep constant at overall level. They remain fixed at absolute level and but keep changing at per unit level. The higher the production the lower the fixed cost per unit

Examples of Fixed Cost

• Depreciation on Production Equipment
• Factory taxes
• Repairs and Maintenance
• Utilities
• Rent
• Insurance