Utilities: Energy costs, such as electricity and gas, used in the production process are considered variable costs as they fluctuate based on the amount of energy used and production levels. Labor: The wages and benefits paid to workers directly involved in the production process are also considered variable costs, as they increase or decrease based on the production level. Raw materials: Raw materials such as wood, steel, or plastics used in production are considered variable costs as they change with the volume of goods produced. In general, fixed costs are expenses that do not vary with changes in the volume of goods or services produced, and they remain constant over a specified period of time.

ĭepreciation: Depreciation of a company's equipment and machinery is also a fixed cost as it represents the cost of the asset spread over its useful life and does not change with changes in production levels.

Salaries: The salaries of employees such as executives, managers, and administrative staff are considered fixed costs as they do not change with an increase or decrease in production. Rent: Rent for a commercial building or office space is a fixed cost as it remains constant regardless of the number of goods or services produced. In contrast, fuel is likely a variable cost for a delivery service like UPS (more packages delivered means more fuel). For instance, fuel is most likely a fixed cost for a food truck (since it takes the same amount of fuel to move the food truck regardless of how much food the company sells).

It is possible for some types of businesses to have costs that are fixed, while other types of businesses may have variable costs. The variable production costs are sometimes referred to as the 'cost of goods sold' in certain financial statements. Raw materials, piece-rate labor, production supplies, commissions, delivery costs, packaging supplies, and credit card fees are all variable costs. The term 'overhead' is frequently used to refer to fixed costs.Ĭosts that are considered variable are those that shift depending on the volume. This is because you must pay fixed costs no matter how much you sell. It would be best to be cautious when considering adding fixed costs to your small business. There are also fixed costs associated with certain types of taxes and business licenses. The cost of rent and leasing space, salaries, utility bills, insurance premiums, and loan repayments are all fixed costs. In general, costs that are considered to be fixed are those that are calculated based on time rather than the quantity of goods or services that are produced or sold by your company. It is possible to produce more than you sell of a product that you are selling (and to sell more than you produce of that product if you have inventory), so the production volume and sales volume may not be the same.Ĭosts considered fixed are those that do not change depending on the volume. In other words, you make and sell it simultaneously. When it comes to selling a service, production volume and sales volume are generally the same because you make it and sell it simultaneously.

The number of units your company sells over a week, month, or year is referred to as its sales volume. Volume relates to the number of units your company produces over a week, month, or year is referred to as the production volume. What are marketing, merchandising or merchandising costs

Variable expenses