Learning Objectives

Fixed Costs

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
Insurance
Interests on loan
Depreciation on assets

Variable Costs

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:

Electricity
Fuel costs
Water consumption

Mixed Costs

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.