Fixed vs Variable Costs

pauldbaker95

Hi all,

I have been struggling with this for a while and keep meaning to post something to reach out for advice. I will try and explain best I can.

I am trying to calculate our Break-Even Point in terms of revenue needed to cover all of our costs (split into variable and fixed categories).

My confusion comes from the definition of a variable cost vs a fixed cost in relation to production output. In our Chart of Accounts and on the P&L statement, I have defined our Cost of Sales accounts and understand these are variable, directly being affected by the sales revenue. I then have a spreadsheet of all our monthly fixed overheads that need to be paid regardless of our revenue, again, this is pretty straightforward for me to define.

The part which has a big grey area for me is the ad-hoc expense accounts such as office refreshments, subsistence, advertising etc (operating expenses) that vary each month but NOT based on the production output. To me, these are variable in the sense that they aren’t fixed like rent each month, but then I struggle with placing them into the same category as a variable expense if the definition of this is only directly proportionate to output.

Essentially what I am asking is what defines a fixed cost vs variable cost. There is differing advice online and my studies only taught me that fixed costs don’t change in relation to OUTPUT, variable costs do. I need to know what category costs that do change on a month to month basis, but NOT based on output. Are these types of costs fixed or variable. I will then be able to start working on our BEP calculations correctly. Am I correct in saying these are G&A (General and Administrative) costs that aren’t included in BEP calculations?

Thank you so much for any clarification you can offer!