What is the difference between fixed and variable costs in PCMCS?

Understanding the distinction between fixed and variable costs is essential in profitability and cost management, particularly in PCMCS. Fixed costs are expenses that do not fluctuate with the level of production or sales; they remain constant regardless of how much product is produced or sold. This means that even if a company produces zero units, fixed costs will still need to be paid, such as rent, salaries of permanent staff, and insurance.

On the other hand, variable costs are those that change directly with the level of production. As output increases, variable costs rise because they are tied to the amount of product produced. Examples of variable costs include raw materials, labor directly involved in production, and utility costs that vary with usage.

The correct option accurately describes this relationship: fixed costs remain constant regardless of production volume, while variable costs change with output levels. This understanding is crucial for developing cost-management strategies and making informed decisions regarding pricing, budgeting, and financial forecasting.