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Business LibreTexts

5.2: Fixed and Variable Costs

  • Page ID
    10613
  • 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.

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    A YouTube element has been excluded from this version of the text. You can view it online here: http://pb.libretexts.org/temp/?p=318

    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:

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    A YouTube element has been excluded from this version of the text. You can view it online here: http://pb.libretexts.org/temp/?p=318

    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.