suresh Difference between Variable and Fixed Costs in Cost Accounting
In cost accounting, variable costs and fixed costs are two important concepts that help businesses understand their cost structure and make informed financial decisions.
Variable Costs: Variable costs are expenses that fluctuate based on the level of production or sales. These costs increase or decrease as the volume of production changes. Examples of variable costs include raw materials, direct labor, and sales commissions.
Fixed Costs: Fixed costs, on the other hand, remain constant regardless of the level of production or sales. These costs do not change in the short term and are incurred even if there is no production. Examples of fixed costs include rent, salaries of permanent staff, and insurance premiums.
The key difference between variable and fixed costs is their behavior in response to changes in production levels. Understanding the distinction between these two types of costs is crucial for effective cost management and decision-making in business.
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