Variable costs change based on how much of a product you produce. For example, if you're in the straw business, plastic would be a variable cost. If you make 100 million straws, you use more plastic than if you make just 50 million.
Fixed costs don't ever change based on how much you produce. This would be stuff like insurance, overhead, and utilities.
That should put you in the right direction. If you wish, we can critique your thinking on the above problem.
Item: Raw Materials (cost for hamburgers)
Total Annual Cost: 650
Item: Building Rent
Total Annual Cost: 9000
Identify which cost item above is fixed and variable and why
1 answer
1 answer