What is the behavior of fixed and variable costs? Explain in detail.
Understand the Problem
The question is asking for explanations about certain accounting terms and concepts, specifically related to management and administration, within the context of a specific model or framework.
Answer
Fixed costs remain constant; variable costs fluctuate with production.
The behavior of fixed costs is that they remain constant regardless of production volume, including expenses like rent and insurance. Variable costs change with production levels, such as raw materials and labor. Businesses attempt to minimize variable costs while managing fixed costs effectively.
Answer for screen readers
The behavior of fixed costs is that they remain constant regardless of production volume, including expenses like rent and insurance. Variable costs change with production levels, such as raw materials and labor. Businesses attempt to minimize variable costs while managing fixed costs effectively.
More Information
Understanding the behavior of costs helps in budgeting and financial planning, allowing businesses to maintain profitability across different production levels.
Tips
A common mistake is failing to recognize that fixed costs do not change with production levels, while variable costs do.
Sources
- Investopedia - Fixed and Variable Costs - investopedia.com
- Corporate Finance Institute - Fixed and Variable Costs - corporatefinanceinstitute.com
- FreshBooks - Fixed vs. Variable Costs - freshbooks.com
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