expenses that remain constant in total regardless of changes in activity within a relevant range. Examples are rent, insurance, and taxes. Fixed cost per unit changes as volume changes.
cost that remains constant regardless of sales volume. Fixed costs include salaries of executives, interest expense, rent, depreciation, and insurance expenses. They contrast with variable costs (direct labor, materials costs) and semivariable costs, which vary, but not necessarily in direct relation to sales.z
cost that remains constant regardless of sales volume. Fixed costs include salaries of executives, interest expense, rent, depreciation, and insurance expenses. They contrast with variable costs (direct labor, materials costs), which are distinguished from semivariable costs. Semivariable costs vary, but not necessarily in direct relation to sales. They may also remain fixed up to a level of sales, then increase when sales enter a higher range. For example, expenses associated with a delivery truck would be fixed up to the level of sales where a second truck was required. Obviously, no costs are purely fixed; the assumption, however, serves the purposes of cost accounting for limited planning periods. Cost accounting is also concerned with the allocation of portions of fixed costs to inventory costs, also called indirect costs, overhead, factory overhead, and supplemental overhead.
business expense that does not vary with the quantity of goods sold or manufactured, within the limits of current capacity. The cost of executive salaries, legal retainers, building occupancy, and office furniture are fixed. The cost of product packaging, shipping, raw materials, and sales commissions are variable with the quantity of goods sold. However, at certain levels of sales volume, fixed costs may have to be increased in order to add capacity. For example, additional manufacturing equipment and supervisory staff may be needed. The marketer must know that when operating at full capacity, a small increase in sales volume could knock fixed costs into a higher plateau that is not justified by the increased revenue.