Provide an appropriate response.If a company decides to make a new product, there are fixed costs and variable costs associated with this new product. Explain the differences of the two types of costs and why they occur. Use an example to illustrate your point.

Question

What will be an ideal response?

Answer 1

Fixed costs occur only once. These costs may be startup costs related to the production of the new product. Variable costs depend on how much product is made. These costs may consist of labor, material, and maintenance.  

For example, a company decided to make oak filing cabinets. Fixed costs would include the costs of purchasing and renovating plant space and the cost of manufacturing equipment. Variable costs would include the cost labor and the cost of materials.