Explain the difference between fixed costs and variable costs.

Explain the difference between fixed costs and variable costs.

Fixed costs are expenses that do not change with the level of production or sales. These costs remain constant regardless of the quantity produced or sold. Examples of fixed costs include rent, salaries, insurance, and depreciation.

On the other hand, variable costs are expenses that vary in direct proportion to the level of production or sales. These costs increase or decrease as the quantity produced or sold changes. Examples of variable costs include raw materials, direct labor, and sales commissions.

In summary, the main difference between fixed costs and variable costs is that fixed costs remain constant regardless of production or sales levels, while variable costs fluctuate based on the quantity produced or sold.