fixed cost

  

Definition

A periodic cost that remains more or less unchanged irrespective of the output level or sales revenue, such as depreciation, insurance, interest, rent, salaries, and wages.

While in practice, all costs vary over time and no cost is a purely fixed cost, the concept of fixed costs is necessary in short term cost accounting. Organizations with high fixed costs are significantly different from those with high variable costs. This difference affects the financial structure of the organization as well as its pricing and profits. The breakeven point in such organizations (in comparison with high variable cost organizations) is typically at a much higher level of output, and their marginal profit (rate of contribution) is also much higher.


Use fixed cost in a sentence

  • It is good to put a fixed cost on your product and not allow for any negotiations if you know that the demand is high.

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  • Utility cost every month for your building would be considered as a fixed cost, which is constantly the same every month.

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  • I was analyzing my electricity bill and I noticed I pay some even if I do not use the electricity because it has a fixed cost element to it.

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