Glossary definition

What is a fixed cost?

Fixed cost

Fixed costs are the costs a company incurs regularly regardless of production quantity or revenue. The general fixed cost definition includes any costs that are consistent within a company’s normal operations. These include any regularly paid and nonfluctuating insurance premiums, property taxes, rent or lease agreements and consistent annual salaries paid to employees.

To calculate fixed cost: add together all fixed, recurring expenses outlined above.

The implication of high fixed costs for a company is a demand for similarly high production output or revenue to maintain profitability. Fixed cost is paired with its opposite, variable cost, in evaluating the total cost structure of a company.

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