The Key Difference Between Fixed vs Variable Costs

fixed costs vs variable costs
Feature	Fixed Costs	Variable Costs
Definition	Costs that remain constant regardless of production or sales volume.	Costs that vary directly with production or sales volume.
Examples	Rent, salaries, insurance, depreciation.	Raw materials, direct labor, commissions, utilities.
Behavior with Production	Unchanged even if production increases or decreases.	Increases or decreases with production volume.
Impact on Cost per Unit	Cost per unit decreases as production increases.	Cost per unit remains constant.
Time Frame	Usually short to long term fixed commitments.	Short-term costs directly tied to output.
Controllability	Harder to control in the short term.	Easier to control by adjusting production levels.
Examples in Business	Factory rent, salaried employees, loan payments.	Materials used per product, hourly wages, shipping costs.
Relevance to Break-Even Analysis	Important to cover fixed costs to avoid losses.	Variable costs affect contribution margin.
Flexibility	Less flexible, fixed over time.	More flexible, varies with production.