Variable costs and fixed costs are two types of expenses that a business incurs in order to produce its products or services. The main difference between the two is the way in which they change in relation to the level of production or sales.

A variable cost is a cost that changes in proportion to the level of production or sales. For example, the cost of raw materials used in production is a variable cost since it will increase as the level of production increases. Other examples of variable costs include labor costs, utilities, and packaging materials.

On the other hand, a fixed cost is a cost that remains the same regardless of the level of production or sales. Examples of fixed costs include rent, salaries of management, and insurance premiums.

In general, fixed costs are more stable and predictable than variable costs. Since they do not change with the level of production, they can be budgeted for in advance. Variable costs, on the other hand, can be more difficult to predict and control since they are tied to the level of production or sales.

Overall, understanding the difference between variable costs and fixed costs is crucial for businesses to make informed financial decisions and manage their expenses effectively.