Question

Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting. Answer: Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes. Without the knowledge of cost behaviors, budgets and other forecasting tools will be inaccurate and unreliable. Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.

Answer 1

Answer:

For the 1St question,

Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes.

For the 2nd question,

Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.

Explanation:

The main difference between the fixed and variable cost is the way it is affected by the production capacity. Variable cost increases as more u it's are produced while.fixed cost remains constant as it is not related with units.

Moreover, Understanding and differentiating fixed and variable costs are important to categorize costs correctly for accounting purposes and to decide what sort of strategies must be implemented.