Comparison · Break-Even
Fixed vs Variable Costs: Examples and Differences
Fixed and variable costs compared with small business examples: how each behaves in total and per unit, where mixed and step costs fit, and why break-even depends on the split.
Total vs per unit Short answer
a fixed cost stays the same in total as volume changes, so its share per unit falls; a variable cost stays the same per unit, so its total grows with volume
Every cost a small business pays can be sorted by one question: does the total change when you sell or make one more unit? Rent on a workshop does not. The materials inside each product do. That split — fixed against variable — is the starting point for break-even, contribution margin, minimum prices and any forecast of what next month will cost at a different volume. Getting it wrong moves every one of those numbers.
| Fixed cost | Variable cost | |
|---|---|---|
| In total, as volume rises | Stays the same within the relevant range | Rises in proportion to the activity |
| Per unit, as volume rises | Falls — the same total is spread wider | Stays the same |
| Typical small business examples | Rent, software subscriptions, insurance premiums, salaried staff, equipment leases | Materials, packaging, payment fees per transaction, shipping you pay, piece-rate labor, sales commissions |
| Driven by | Time (per month, per year) | An activity: units, orders, hours, miles |
| Role in break-even | The amount to be covered | Subtracted from price to get the contribution per unit |
Behavior in total and per unit
Take a maker with $6,000 of monthly fixed costs and $8 of materials and packaging in every unit. The table shows the same month at three volumes. The variable total triples as volume triples, while the variable cost per unit never moves. The fixed total never moves, while the fixed cost carried by each unit drops from $12 to $4. That falling per-unit figure is why quoting a "cost per unit" without naming the volume behind it is risky: the number is only true at that volume.
| Units | Fixed total | Fixed per unit | Variable total | Total cost per unit |
|---|---|---|---|---|
| 500 | $6,000 | $12.00 | $4,000 | $20.00 |
| 1,000 | $6,000 | $6.00 | $8,000 | $14.00 |
| 1,500 | $6,000 | $4.00 | $12,000 | $12.00 |
Fixed costs
- Plan them by: Period: list what you pay per month whatever you sell, and keep the list for the same period as your sales figure.
- Watch out for: A per-unit fixed cost taken from a busy month will understate cost in a slow month.
Variable costs
- Plan them by: Driver: cost per unit, per order or per hour, multiplied by the expected activity.
- Watch out for: Per-order fees and shipping are variable per order, not per unit; mixing the two drivers distorts contribution.
Classify by behavior, not by the name on the invoice: the same type of expense can be fixed for one business and variable for another.
Mixed and step costs
Some costs have both parts. A utility bill with a monthly service charge plus usage, a phone plan with a base fee and overage, or a delivery contract with a monthly minimum and a per-drop rate are mixed costs. They are modeled as total cost = fixed part + variable rate × activity, and the fixed part can be estimated from your own records with the high-low method. Step costs are different again: they stay flat over a range of activity and then jump, like a second machine or a part-time helper once orders pass a threshold.
The relevant range is the band of activity in which a cost keeps its behavior. Rent is fixed until you outgrow the space; a supplier price per unit is variable until a volume break changes it. Keep forecasts inside the volumes you have actually seen, and recheck the split before you plan for a much larger or smaller month.
Method reference: OpenStax: Identify and Apply Basic Cost Behavior Patterns. Checked October 26, 2026. All amounts are hypothetical worked examples.
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