Question

business finance course discussion question .

One of your family members asked you the following questions after reading an article online about business: What do they mean when they use the two business expenses, variable and fixed? On which business financial statement do you find them? I’ve looked and there is nothing called variable or fixed? Why are they important in business? How did you help your family member?

Answer 1

the two types of costs incurred in any business is:

• Fixed costs
• Variable costs

Fixed costs are costs that a business needs to incur irrespective of any output. For example, the business needs to pay the rent and electricity expenses irrespective of the level of sales in a business. The fixed costs are incurred by the business , even if the level of activity in the business is zero.

Variable expenses are expenses that are directly and proportionately related to the level of business output. For example, the costs of raw materials increases or decreases with the level of business activity, with more/less volume in the business, the variable costs increases/ falls .

These expenses can be found on the income statement, These costs are important because the sum of fixed and variable costs helps to achieve the level of total costs , which helps to determine the gross profit of the business. these costs are important also because they help to project the profits and calculate the break even points for the business.