I just realized that Fixed Cost and Variable Cost are very important if we want our business to last long-term. It’s not just about knowing the costs, but understanding which costs are fixed and which depend on production.

Let's start with Fixed Costs first. These are expenses that must be paid regardless of whether the business sells a lot or a little. Whether you produce 100 or 1,000 units, these costs remain the same. For example, rent, employee salaries, insurance, loan interest, equipment depreciation—these are Fixed Costs that must be paid every month no matter what happens.

Why is it important to understand this? Because it directly affects how we set the price of our products. If we don’t fully account for Fixed Costs, the selling price might be too low, leading to losses. Good financial planning must consider Fixed Costs to cover basic expenses.

And what about Variable Costs? These are the opposite. These costs change according to the volume of production or sales. The more you produce, the higher these costs; the less you produce, the lower they are.

What are some examples of Variable Costs? Raw materials, direct labor, energy costs for production, packaging, shipping, sales commissions—all of these depend on how much we produce or sell.

The key difference is that Fixed Costs are stable, making it easier to forecast and plan budgets. Variable Costs are more flexible; we can reduce them if production decreases.

Cost mixture analysis involves combining Fixed and Variable Costs to get an overall picture of total costs. This helps us to:

Set appropriate product prices, plan production efficiently, make better investment decisions, identify high-cost areas, find ways to reduce costs, and assess the impact of market changes.

Do you now understand how Fixed Costs and Variable Costs play roles in a business? For me, knowing these costs is a fundamental foundation that helps a business stay competitive, maintain financial stability, and grow sustainably—no matter how much the market changes.