How can we know the Fixed Cost Behavior? Give a full example.
Fixed cost behavior is a term used to distinguish between variable and fixed costs. We know that variable costs are much more directly tied to production. A simple example would be that in making shoes, the leather is a variable cost. First, a factory cannot make shoes without leather or without labor to put them together. Therefore variable costs have a linear relationship with production levels, meaning the more leather used, the more shoes produced.
The fixed costs are those that do not vary with production within a relevant range. In truth, even fixed costs are variable at some point. As an example, a factory that makes shoes may have a capacity to produce x quantity of shoes within the space of the factory and the speed of the production lines. But if the ...
The 525 word solution provides a good explanation of how to distinguish between variable and fixed costs together with examples.