Business Finance and Arithmetic — Entrepreneurship STD 11 Commerce — Question

Fixed cost is one which does not vary in total when the level of output by the business does vary. In other words, if the sales level within a buisness increases or decreases, fixed costs in total, would not increases nor decreases.

Variable cost is that which varies in direct proportion to changes in the level of output by the buisness.

In other words, if the sales level within a buisness increases or decreasese, varible cost also increases or decreases respecticvely.

Fixed cost for a buisness is the cost associated with the rent or owenrship of permises, insurance, and costs associated with the ownership of equipment.

The costs corresponding to variable factors are described as variable costs. These costs are incurred on raw materials, ordinary labour, transport, power, fuel water, etc. which directly vary in the shorts runs.

An examples of a variable cost for a bakery would be the cost of flour.

As fixed costs are not dependent upon the level of output (sales) and it is unavoidable cost.

It is totally dependent upon the level of output.

It is always expressed as being per period of time, like Annual sales, Weekly Sales or Monthly Sales.

It Should be able to be expressed per item of output sales.

Fixed Cost = Total Cost - Variable Cost

Variable Cost = Total Cost - Fixed Cost

Fixed cost is a horizontal straight line parallel to X-axis signifying that when ouput increases fixed cost remain constant.

Variable cost curve is upward sloping showing that as output increases variable cost also increases.