Variable costs & fixed costs
The cost could be classified as a variable or fixed
What does variable mean or fixed mean?
The variable costs:
Are the costs which changed in total according to the volume of production or the level of activity
"The high is the level of activity is, the high is the cost"
The fixed costs:
are the costs which unchanged in total whatever the volume of production or level of activity and work
"It remains the same, whatever the level of activity is"
For example,
A manufacturing company
The rent of the building is a fixed cost, will be paid whatever the factory produced or not
But the cost of the materials depends on the level of activity & the no. of products produced
"The high the no. of products, the high is the material cost"
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