fixed cost

Definition

Periodic cost that remains (more or less) unchanged irrespective of the output level or sales revenue of a firm, 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. Firms with high fixed costs are significantly different from those with high variable costs. This difference affects the financial structure of the firm as well as its pricing and profits. The breakeven point in such firms (in comparison with high variable cost firms) is typically at a much higher level of output, and their marginal profit (rate of contribution) is also much higher.