What does the two-element method mean?

1 The two-element method refers to a method in enterprise cost analysis that divides costs into two elements: fixed costs and variable costs.

2 Fixed costs refer to costs that do not change with changes in output, such as rent, depreciation, etc. Variable costs refer to costs that change with changes in output, such as raw materials, labor, etc.

The two-factor method can help companies understand their cost structure and provide a basis for formulating cost control strategies.

3 In addition, the two-factor method can also help companies conduct cost-profit-output analysis and provide guidance for companies to improve economic benefits.