What is the difference between Fixed and Variable Costs?

Fixed cost and variable cost are two different things though they are talking about the cost of an element or elements. As their names imply, it is very easy to differentiate the two costs from their names. Fixed cost refers to cost of elements which does not change even when there are changes in the level of activities. Fixed costs are costs that remain as they are, regardless of any increase in the products produced.

Examples are salary, Tax, Rent and insurance. While variable costs are costs that tend to change when there is a change in the level of activities or when there are changes in the products produced. This means, variable costs of a company change when the output of the company decreases or increases. Another difference is that, fixed costs are incurred, regardless of whether products are produced or not, while variable costs are costs incurred only when units are produced.