Fact of the Day 1

Share this post
September 22: An overview of Variable vs. Fixed Costs
www.factoftheday1.com

September 22: An overview of Variable vs. Fixed Costs

Understanding total cost helps leaders determine the selling price of their product.

Danny Sheridan
Sep 22, 2021
4
2
Share this post
September 22: An overview of Variable vs. Fixed Costs
www.factoftheday1.com

Suggest a topic for a future fact.

Source: Indeed
Published: February 2021

An overview of Variable vs. Fixed Costs

Variable costs are expenses that change proportionally to the changes in activity level. Examples include shipping, cloud infrastructure costs, and sales commissions. 

Fixed costs are expenses that remain constant for a period of time regardless of their level of output. Examples include rent payments, salaries, and property taxes.

10 Customer Orders
Variable Cost per Order:
$100
Total Variable Cost: $1,000
Total Fixed Cost: $500,000
Total Cost: $501,000
Total Cost Per Order: $50,100

500 Customer Orders
Variable Cost per Order:
$100
Total Variable Cost: $50,000
Total Fixed Cost: $500,000
Total Cost: $550,000
Total Cost Per Order: $1,100

1000 Customer Orders
Variable Cost per Order:
$100
Total Variable Cost: $100,000
Total Fixed Cost: $500,000
Total Cost: $600,000
Total Cost Per Order: $600

*Variable Cost per Order includes the product, packaging and shipping fee.

Takeaways:

  • Companies incur two types of costs: variable costs and fixed costs.

  • Variable costs vary based on the amount of output produced.

  • Fixed costs remain the same regardless of production output.

  • Understanding total cost helps leaders determine the selling price of their product.

Leave a comment

Comment
Share
Share this post
September 22: An overview of Variable vs. Fixed Costs
www.factoftheday1.com

Create your profile

0 subscriptions will be displayed on your profile (edit)

Skip for now

Only paid subscribers can comment on this post

Already a paid subscriber? Sign in

Check your email

For your security, we need to re-authenticate you.

Click the link we sent to , or click here to sign in.

Victoria
Sep 22, 2021

This assumes we're talking about cost-based pricing as opposed to value-based pricing.

Expand full comment
Reply
Anmol Kaushik
Sep 22, 2021

That could explain why buying more of the same stuff costs less.

Expand full comment
Reply
TopNewCommunity

No posts

Ready for more?

© 2022 Fact of the Day 1
Privacy ∙ Terms ∙ Collection notice
Publish on Substack Get the app
Substack is the home for great writing