How do fixed costs differ from variable costs?
Give examples. Fixed costs remain the same in total even though production varies from month to month. Example: Rent of factory building. Variable costs increase or decrease in proportion to the monthly rise or fall of production. Example: Direct labor costs. If production triples in the second month as compared to the first month, then direct labor costs should also triple. • What are semi-variable costs? These are costs that are partly fixed and partly variable. They are also called mixed costs. At a production level, the variable portion should be added to the fixed portion to get the total semi variable cost at that level. Example: A salesman who has a contract with the firm to get a certain minimum wage per month (Fixed Portion) plus a commission (Variable Portion). • How do direct costs differ from indirect costs? In apportioning total costs to various departments of the firm, a cost that can be directly traced to specific departments is a direct cost. Let us assume that there is
