Question

If you did have a choice, though, between using fixed or variable costs, which would you prefer? Why?

Answer 1

During Fixed and variable cost choice the main factor that will be the deciding factor will be the budget available with the company. The fixed costs remain the same throughout the financial year it makes it easier to budget for the company. Variable costs are also more controllable than the fixed costs. Fixed costs do not change with the volume of the units produced because they're not related to operations or volume. While the variable costs change over a specified period and are associated directly to the business activity so are very fluctuating which makes it hard to calculated and budget in the start of the financial year. So, prefrence should be given to fixed cost if the level of production expected is more in quantity while if the production of units is expected to be low the variable costs can be taken.