Fixed costs are costs that do not change when the level of production increases or decreases. Fixed costs remain the same for a period of time. For example, rent is a fixed cost as it does not change if a manufacture's production increases.
Some other fixed costs could include:
- Marketing/advertising fees
- Interests on loan
- Depreciation on assets
Variable costs are costs that change when the level of production increases or decreases. Variable costs change in line with a manufacturer's production. For example, wages is often a variable cost as if production increases, more labour hours is required to increase the volume of output.
Some other variable costs could include:
- Fuel costs
- Water consumption
Mixed costs are costs that include both features of fixed and variable costs. For example, a telephone expense could charge a fixed line rental (fixed cost) and an additional cost based on the number of phone calls made (variable cost).
Some other mixed costs could include:
- Payment Systems - often charge a monthly cost and then payment fees associated with each transaction.
- Water - Often includes a monthly service fee plus an additional cost per litre used.