For a cake baker, ingredients such as flour and eggs are examples of variable costs while her oven is an example of a fixed cost. A variable cost is business expense that varies according to how much company produces or sells.
Variable costs rise or fall in relation to company's production or sales volume, rising as production increases and falling as production decreases. A fixed cost is one that does not change as quantity of goods or services produced or sold increases or decreases. Fixed costs are expenses that must be paid by business regardless of its specific business activities.
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