QUESTION
What’s the difference between fixed and variable costs?
ANSWER
It’s important for small business owners to track and understand how expenses vary with changes in production and sales volume because it impacts many aspects of the business.
Most businesses have both fixed and variable costs. Fixed costs, or overhead expenses, are incurred regardless of a change in production and sales volume. Examples of fixed costs include rent, insurance, utilities, and some taxes (like property tax).
Examples of variable costs include raw materials, delivery expenses, sales commissions, and credit card processing fees.