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Commercial Applications

On what basis are Fixed Cost differentiated from Variable Cost?

Cost

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Answer

Fixed Cost and Variable Cost are differentiated on the following bases:

S.No.Basis of DistinctionFixed CostVariable Cost
1.BehaviourFixed costs remain constant within a given range of activity and a given time period, irrespective of changes in volume of output.Variable costs vary in proportion to changes in the volume of output.
2.BasisFixed costs are time-based — they relate to the passage of time.Variable costs are activity-based — they relate to the level of activity.
3.Total costFixed in total.Vary in total — increase with increase in volume of output, decrease with decrease in output.
4.Per unit costVary per unit — decrease with increase in the volume of output.Constant per unit — remain the same regardless of the volume of output.
5.ControlNot controllable in the short run.Controllable in the short run.
6.Behaviour at zero outputContinue to be incurred even at zero level of output.Become zero when there is no output.
7.ExamplesRent of factory, salary of factory manager, insurance, depreciation of plant.Cost of raw material, power and fuel, direct wages on piece-rate basis.
On what basis are Fixed Cost differentiated from Variable Cost. Fundamental Concepts of Cost, ICSE Commercial Applications CB Gupta Goyal Brothers Solutions Class 10.

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