Question

What is the difference between a fixed cost and a variable cost and why are both of these costs important to the accounting process?

Answer 1

FIXED COST

fixed costs are the costs which will not alter when the production level changes it is always fixed.for example the salary of a supervisor in production factory is a fixed cost it won't increase or decrease when the production level changes.

VARIABLE COST

variable costs are costs which will alter when production level changes.for example the direct material cost of a product is a variable cost the total variable cost will increase when production level increases and total variable cost decreases when production level decreases.

fixed and variable costs are very important to account process for cost analysing.by differing the variable and fixed cost of a company it can get ways how to reduce the costs and to conclude how much will be the total cost and how much cost will increase when the production level increases.