Fixed-Rate vs Variable-Rate Electricity: Which is Better?

Some examples of variable costs for an organization include production related expenses, direct material, and direct labor for the company. Over the course of time, even if the level of production increases within the company, the total fixed costs still the same. However, fixed cost per unit tends to decrease with the increasing level of input within the company. The cost of electricity is an indirect cost since it can’t be tied back to the product or the specific machine.

  • Fixed rate contracts for 6 or 12 months give you a short-term fixed rate option.
  • The cost of electricity is an indirect cost since it can’t be tied back to the product or the specific machine.
  • Nevertheless, for those seeking stability and predictable costs, fixed rate plans are a solid choice.
  • It’s always a good idea to compare rates from different providers to ensure you’re getting the best deal.
  • Variable costs are expenses that vary in proportion to production output or sales.
  • Salaries include only those paid on a salaried basis and do not include hourly employees whose hours may change due to production demand.

Unlike direct costs, variable costs depend on the company’s production volume. When a company’s production output level increases, variable costs increase. Conversely, variable costs fall as the production output level decreases.

Electricity Questions?

Refer to the product fact sheet (or relevant similar documentation) before making any purchase decision. Our local experts can help you navigate options and find the best electricity plan. When looking for an electricity rate, you need to know how much electricity you use. We provide a platform where you can compare rates from different providers, making it easier for you to find a plan that fits your needs and budget.

” It is evident that the answer depends on the cost parameters of the technologies available. But screening curves show us, that though less obvious, it is equally important to consider the use to which power plants are put. The least-cost technological choice for a power plant that is expected to operate only rarely is almost certainly different from the least-cost choice for a plant that will run around the clock.

Are Fixed Costs Treated as Sunk Costs?

One of the biggest benefits of fixed rate plans is that they provide consistency and reliability. This can be especially useful for those who want to avoid risk when it comes to their finances. In a market where electricity prices are rising, a fixed rate plan will save you the most money. Even if electricity prices go up, you’ll be able to keep paying the lower price on your contract until it expires. Direct costs and variable costs are similar in nature and are both types of costs involved in production. Direct costs are expenses that can be directly traced to a product, while variable costs vary with the level of production output.

Average Electric Bill by State and Region

By doing so, you’ll have a much better idea of which plan better suits your needs. Just as no two electricity plans are the same, no two households have the same energy needs. It comes down to how you use energy, how you like to budget, how much risk you can take and your local energy prices. But whichever plan you choose, be sure to examine the terms and conditions of your contract before committing. These costs are based on the SA Power network in Adelaide but prices may vary depending on your circumstances.

Which of the following is not fixed cost?

As such, a company’s fixed costs don’t vary with the volume of production and are indirect, meaning they generally don’t apply to the production process—unlike variable costs. The most common examples of fixed costs include lease and rent payments, property tax, certain salaries, insurance, depreciation, and interest payments. Here are some of the cheapest published deals from the retailers on our database that include a link to the retailer’s website for further details.

Overview: What are variable costs in accounting?

There is no guarantee that your rate will stay the same each month, so your bill can change. With a fixed-rate plan, your energy bill is calculated by multiplying your fixed rate per kWh by the amount of electricity you’ve used, plus any additional fees or charges. In addition, if you move frequently (or are planning to move in the near future), you might not want to lock yourself into a long-term contract that requires you to stay in a certain service zone.

Electricity Information

Mathematically, long-term profit is equal to discounted sum of short-term profits minus fixed cost. Put differently, short-term profits are necessary to re-cover the investment costs and run the plant profitably in the long run. Screening curves (or lines) depict the what heading is the capital lease reported under on a balance sheet total cost of thermal power plants per year per unit of capacity. The x-axis shows full load hours (or capacity factors) and the y-axis shows total annual costs. In Figure 5 each line represents the total cost per kW for a different thermal generation technology.