by Costas Chryanthou

Created on: January 21, 2010

Fixed costs are expenses that a company pays which tend to stay the same regardless of how much output is used. Examples of fixed costs include telephone, electricity, gas, heating and electric expenses. These expenses have to be paid and are relatively straightforward as well as they have to be paid for. The variable costs would include items of expenses that a company has paid over a time that varies depending on how much output and work a company does. The simple examples of variable costs include items such as raw materials, supervisors overtime expenses as well as the raw materials that a company decides to order. Other examples of variable costs include stationery, office supplies, bonuses to employees.

Fixed costs stay constant and variable costs vary. If a company makes a break even chart the diagram will show that fixed costs are indicated on the graph in a straight line horizontally, whereas the variable costs will start at the zero level and will slope in a diagonal line aimed towards the right hand side of the graph when the output of a company rises. The variable costs tend to be higher than fixed costs on the break even chart. Calculations of all costs have to be taken into account on a break even chart. The main costs such as factory premises and factory rent are fixed as these costs stay fixed. The raw materials vary as so does the expenses paid to supervisors, where as the money paid to employees tends to stay constant, unless of course the management requires the employees to work extra hours or in over time.

Other types of variable costs can include items such as expenses for all items that relate to payments to suppliers for items including raw materials, supplies of office. Fixed costs will include payments for machinery that are used in the business along with the costs of running machinery and in meeting a certain level of output. Semi variable costs are expenses that tend to be fixed, though as output in the factory or warehouse increases the costs rise and are as such defined as semi variable costs. Expenses such as commercial insurance is fixed costs as the company will pay the same level for a twelve or extended period. The costs only rise if the insurance company decide to increase premiums, this will certainly make the costs of insurance a semi variable expense.

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