Fixed and Variable Costs

A cost is fixed if it is independent of the quantity produced. For example, the machine setup costs are fixed costs: whatever the size of the produced batch, it is necessary to prepare the machine for the considered product type.

A cost is said to be variable if it is proportional to the produced quantities. In the variable costs, one finds direct labor, the workshop expenses, equipment depreciation.

Typically, the production of a batch of parts, according to a specific routing, simultaneously induces fixed costs (the sum of the setup costs of the machines used to perform the sequence of operations) and variable costs (sum of the operating costs of the operations).