Subject: Cost and Works Accounting III Unit 01: Marginal Costing

Fixed Cost

These are the costs which incurred for a period and which within certain output and turnover limits, tend to be unaffected by fluctuations in the levels of activity (Output or turnover). Fixed Cost also known as “Rigid Cost”

This cost remains fixed in total amount do not increase or decrease with volume of production. But the fixed cost per unit increase when the volume of production decrease. And decrease when the volume of production increase

For example: Rent, insurance of factory building etc.

Fixed Cost Graph

Variable Cost

These costs tend to very with the volume of activity. Any increase in activity results in an increase in the variable cost and vice versa. Variable cost also known as "Marginal Cost" 

This cost are variable in total amount and increase or decrease with the volume of production. But per unit variable cost remain fixed 

For example: Cost of direct labour, direct material, etc.

Variable Cost Graph