Variable costs behavior just the opposite of fixed costs. Variable costs do change with our level of activity. For example, our wage expense is $4,000 per month when we sales are $65,000. When sales increase to $75,000, our wage expense increase to $4,500. And when sales fall to $55,000, our wage expense is $3,500.

Variable costs vary in Total as our level of activity vary.

Fixed costs are those costs which do not change from month to month, regardless of how busy we are. For example, the store rent is $1,500 per month, regardless of what our sales are for the month. If sales are $65,000, our rent is $1,500. If sales increase to $75,000, the rent is still $1,500. If our sales fall to $55,000, our rent is still $1,500 for the month.

Fixed costs are fixed in Total, regardless of our level of activity.

Does a fixed cost such as rent always remain fixed? Does it always remain the same. No these fixed costs will change at some point in the future. This is where the term relevant range comes in. At some point, we will outgrow the building we rent and need more space. When we rent larger facilities, our rent expense will increase. After that increase, our rent will continue to be a fixed cost with a new relevant range.

Let's say a company in March produces 15,000 widgets per month. At that volume, their fixed costs are $45,000 and total variable costs are $75,000 for a total cost of $120,000.

• What is the fixed cost per unit and the variable cost per unit?

Then in April, the same company produces 18,000 widgets.

• What is the total cost for April?
• Which of the two cost behaviors change?
• Why did those costs change?