5.2 Fixed and Variable Costs

Fixed Costs

Fixed costs remain in TOTAL but change per unit based on the actual amount of production.  Here is a video to discuss these concepts.



Examples of fixed costs include monthly rent, mortgage or car payments, employee salary, depreciation calculated under straight-line method, and insurance.

Variable Costs

Variable Costs remain the same PER UNIT but CHANGE in total.  Watch this video for another explanation:



Variable costs for a manufacturer would include things like direct labor of hourly workers, other wage employees, direct materials, applied overhead,  sales commissions, and depreciation under units of production method.

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