Fixed Cost
In economics, fixed costs are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as salaries or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced).
In management accounting, fixed costs are defined as expenses that do not change as a function of the activity of a business, within the relevant period. For example, a retailer must pay rent and utility bills irrespective of sales.
In marketing, it is necessary to know how costs divide between variable and fixed. This distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns. In a survey of nearly 200 senior marketing managers, 60 percent responded that they found the "variable and fixed costs" metric very useful.
Read more about Fixed Cost: Areas of Confusion
Famous quotes containing the words fixed and/or cost:
“...a fixed aim furnishes us with a fixed measure, by which we can decide whether such or such an action proposed is worth trying for or not, and as aims must vary with the individual, the decisions of any two people as to the desirableness of an action may not be the same.”
—Anna C. Brackett (1836–1911)
“The cost of a thing is the amount of what I will call life which is required to be exchanged for it, immediately or in the long run.”
—Henry David Thoreau (1817–1862)