What is Fixed cost?

Fixed costs are expenses that remain constant regardless of changes in the volume of goods or services produced or sold. Examples of fixed costs include rent, salaries, insurance, and property taxes.

These are the costs that do not change with a change in production or revenue. For example, rent, insurance, depreciation, and so on. Costs are often associated with specific time periods.

Fixed costs are generally not controllable as sales happen or not, but rent has to be paid. So, for new businesses, it directly impacts profitability. On the other hand, the business will grow and will need more space, so they will buy a new office. So, fixed costs remain the same for a specific period of time, not for an indefinite period.

The decision to incur a new fixed cost for a business is generally made at the top management level as it will increase the total cost of the business, and budget plays a vital role in this decision. Also, fixed costs are considered when calculating the break-even point for the business.

Did you know?

It is easy to record fixed costs, and it is important to estimate future fixed costs as they directly affect the profit. The Nimblefincorp team can help you prepare your budgets in advance to avoid revenue decline. You can even get free consulting. Try it out right now.