In short period, total cost is divided into fixed cost and variable cost. In short period, some factors are fixed such as factory building, machines etc. and some factors variable such as fuel, raw materials etc.

Fixed factors do not change when volume of production change and variable factors directly vary with the volume of production. Cost incurred on fixed factors is known as fixed cost.

The amount of fixed cost does not change and remains fixed whether volume of production is more or less or zero.

Its examples are rent of the building, interest of the money invested in machines and so on.


Cost incurred on variable factors is known as variable cost. This cost directly varies with the volume of production. If volume of production is zero, this cost will be zero. Its examples are fuel cost, cost or raw materials etc.