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Question
Distinguish between fixed cost and variable cost.
Solution
- Fixed Cost:
- Does not change with the change in the quantity of output.
- It is also called as ‘Supplementary cost’ or ‘Overhead cost’.
(Eg.) Rent of the factory, Permanent worker’s salary.
- Variable Cost:
- These costs vary with the level of output
- It is also called as ‘Prime cost’, ‘Special cost’ or ‘Direct cost’.
(Eg.) Cost of raw materials, Temporary worker’s salary.
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