Question

Distinguish between fixed cost and variable cost.

Answer 1

• Fixed Cost:

1. Does not change with the change in the quantity of output.
2. It is also called as ‘Supplementary cost’ or ‘Overhead cost’.
   (Eg.) Rent of the factory, Permanent worker’s salary.

• Variable Cost:

1. These costs vary with the level of output
2. It is also called as ‘Prime cost’, ‘Special cost’ or ‘Direct cost’.
   (Eg.) Cost of raw materials, Temporary worker’s salary.