Examples of fixed monthly expenses8/28/2023 ![]() Variable expenses are often discretionary and can often be changed or eliminated by behavior. annually) and occur in predictable amounts. Periodic expenses are less frequent (e.g. Fixed expenses are recurring expenses that don’t change and are usually paid monthly. The three types of expenses in a budget are fixed, periodic, and variable. What Are the 3 Types of Expenses in a Budget? What Are the 3 Types of Expenses in a Budget?. ![]() If you’re creating your first budget, there are three types of expenses you should understand: fixed, periodic, and variable. I decided I needed to get on a budget to get my finances under control. That all changed when I realized that the purpose of a budget was not to torture or bore myself. My wallet was always empty at the end of the month. I had a vague notion of what my expenses were, but I always spent more than I thought I would. When a bill came in, I was never 100% sure I had the money for it. Once in a while, I’d go too far, to where paying rent on time became a matter of being late on some other bill. I would wind up struggling financially and not having enough cash to put gas in my car after paying rent. I would get paid, go have drinks with the guys, play a round of golf, and buy new sneakers or something else I didn’t really need. I didn’t know there were 3 types of expenses in a budget and I didn’t care. When I was just starting out, I would spend first and ask questions later. I never understood the importance of budgeting. I spent years living paycheck to paycheck. " xlink:href="# flipboard "> Share on Flip it The following table shows how fixed costs are fixed, regardless of levels of production, over a relevant range.Share on Twitter Share on Facebook Share on Pinterest Share on WhatsApp However, at some point (the 1,001st table, in our example) fixed costs increase to accommodate the need for more capacity. At 999 tables, the fixed costs are $20,000. At ten tables, the fixed costs are $20,000. If the company produces 0 tables, it still pays the fixed costs of $20,000. Assume our table company pays monthly rent, insurance, full-time staff, and utilities in the amount of $20,000, and that the company pays assembly workers by the piece, so that if a worker is not needed during the month, he or she does not earn a base salary (just to simplify the example). However, within a relevant range, say between 0 and 1,000 tables produced, fixed costs do not change. Sometimes these costs are referred to as “step” costs because they jump up incrementally as production increases. However, doubling production would mean renting another assembly facility and hiring another supervisor, doubling fixed costs. The costs remain the same regardless of the number of units sold until capacity has been reached, at which time the company cannot produce or sell any more without spending money for expansion.įor our table manufacturer, assume producing 1,000 tables per month could be done in one facility with one supervisor. These are general expenditures that cannot be traced to any one item sold and may include electricity, insurance, depreciation, salary, and rent expenses.įixed costs are considered within a relevant range. Fixed Costsįixed costs remain the same in terms of their total dollar amount, regardless of the number of units sold. You can view the transcript for “Variable Costs” here (opens in new window). Here is a short video recap of variable costs: Using our example of $780 per unit in material and labor costs, this chart shows how variable costs increase in direct relation to the number of units manufactured. Paint and shipping materials might also be considered variable costs, but since they are very hard to allocate to each table, they will more likely be lumped in with manufacturing overhead and treated as a fixed cost. ![]() In addition, it takes two hours for a worker to put the table together, paint it, and wrap it for shipping, and the worker makes $40 per hour including benefits. The top costs $500 and each leg costs $50. Each table consists of a top and four legs. For example, a furniture manufacturer buys parts with which to build tables. The most common variable cost would be raw materials. Variable cost examples include sales commissions, hourly workers, and units-of-production method depreciation, as these amounts will change based on total volume, but the amount charged per unit does not change. Variable CostsĪ variable cost remains the same per unit but changes in total. ![]() Differentiate between fixed and variable costsĬosts can also be classified as variable, fixed, or mixed.
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