Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting

What will be an ideal response?

Answer: Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes. However, variable cost per unit remains the same at all levels of production and fixed cost per unit reduces with increase in production. Without the knowledge of cost behaviors, budgets and other forecasting tools will be inaccurate and unreliable. Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.