Chapter 9, Problem 9.19MML

Summary Introduction

To compare and contrast: The variable and fixed cost and their significance in price settings.

Introduction:

Costs of production and sales do not vary in a particular period of time. For example, rent, salary, and interest should be paid on a monthly basis, whether the company produces products or not. This cost is known as the fixed cost.

Costs that differ directly, on the basis of the level of production, are different. For example, material cost, electricity cost, wages, and so on, are paid only if they can be used; otherwise, the company need not spend anything for these expenses. This cost is known as the variable cost.