Question

On what basis of distinction is fixed cost differentiated from variable cost?

Answer 1

Sr. No.	Basis on Distinction	Fixed Cost	Variable Cost
1.	Behaviour	Total fixed cost remains constant regardless of production value.	Total variable cost varies with output levels.
2.	Per unit cost	Per unit fixed cost decreases with increase in production.	Variable cost per unit tends to remain constant (assuming unit cost structure).
3.	Flexibility and manageability	These costs are difficult to adjust in short term.	These costs are more easily adjustable.
4.	Nature	Costs incurred on renting property, machines, and permanent labourers.	Costs incurred in raw materials, daily labour, etc.
5.	Impact on break even analysis	Higher fixed cost means higher sales to meet atleast fixed cost.	Variable cost influences profit margin & break even on per unit basis.