Variable and Fixed cost

 •     Variable cost: Variable costs are costs that vary in total directly and proportionately with changes in the activity level. If the level increase by 5% , total variable costs will increase 5%. If the level of activity decreases by 20% , variable costs will decrease 20%. A variable cost may also be defined as a cost that remains the same per unit at every level of activity.

 •     Fixed costs:  Fixed costs are costs that  remain the same in total regardless of changes in the activity level. As total fixed costs remain  constant as activity changes, it follows that fixed costs per unit vary  inversely with activity. As volume increases, unit cost declines   and vice versa.