Question

Discuss the importance of classifying expenses into variable and fixed give two examples of each

Answer 1

Answer:

Fixed cost are costs which does not depend on output. It remains fixed. Variable cost are costs which depends on output and it varies with output. It is important to classify expenses into fixed cost and variable cost.

Some of them are:

• Fixation of selling price: This is helpful in determining the selling price of products. Sometimes, different prices are charged in several products. So if there is a fixed rate, then different prices cannot be charged.

• Help in cost control: Cost can be controlled by classifying it into variable and fixed rate.

• Help in budgetary control: This classification is very helpful in budgeting.

Examples of variable costs: labor, cost of raw materials

Examples of fixed costs: Rental payment, insurance, interest payment.

Explanation: