Explain the importance of distinguishion between fixed and variable costs.
Explanation of Solution
The earning and income of a company will be affected by fixed and variable costs. Individuals distinguish between fixed and variable costs for the same purpose. That is, to clearly calculate the earnings and income of a company, individuals will distinguish between fixed and variable costs. Fixed cost is the cost that will remain constant and known as the initial investment or spending of a firm to start the business. The variable cost includes all expenditures of the company, and it will vary with varying production. For a clear calculation of earnings and losses, individuals will distinguish between fixed and variable cost.
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