Fixed costs such as rent or a supervisor’s salary will not change in total within a reasonable range of volume or activity. For example, the rent might be $2,500 per month and the supervisor’s salary might be $3,500 per month. This total fixed cost of $6,000 per month will be the same whether the volume is 3,000 units or 4,000 units.

On the other hand, the fixed cost per unit will change as the level of volume or activity changes. Using the amounts above, the fixed cost per unit is $2 when the volume is 3,000 units ($6,000 divided by 3,000 units). When the volume is 4,000 units, the fixed cost per unit is $1.50 ($6,000 divided by 4,000 units).

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About the Author: Harold Averkamp (CPA) has worked as an accountant, consultant, and university accounting instructor for more than 25 years. He is the creator and author of all the content found on AccountingCoach.com. You can read 1,500 testimonials praising his ability to explain accounting in a way that anybody can understand.

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