Capacity Cost

AAA

DEFINITION of 'Capacity Cost'

A fixed expense incurred by a company or organization in order to provide for or increase its ability to conduct business operations. Capacity costs generally do not vary with production levels and can be reduced or avoided only by shutting down business locations or outsourcing.

INVESTOPEDIA EXPLAINS 'Capacity Cost'

Typical examples of capacity costs are items such as rent or lease payments, depreciation on equipment or machinery, property taxes, insurance and basic utilities such as heating. These types of expenses must be incurred in order to provide a functional office or business location where a company can conduct operations and are incurred regardless of how much (or how little) business is actually conducted.

RELATED TERMS
  1. Variable Cost

    A corporate expense that varies with production output. Variable ...
  2. Fixed Cost

    A cost that does not change with an increase or decrease in the ...
  3. Overhead

    An accounting term that refers to all ongoing business expenses ...
  4. Sunk Cost

    A cost that has already been incurred and thus cannot be recovered. ...
  5. Semi-Variable Cost

    A cost composed of a mixture of fixed and variable components. ...
  6. Irrelevant Cost

    A managerial accounting term that represents a cost, either positive ...
Related Articles
  1. Fundamental Analysis

    Analyzing Operating Margins

    Find out how to put this important component of equity analysis to work for you.
  2. Investing

    Operating Leverage Captures Relationships

    Find out how fixed and variable costs interact to shed new light on old companies.
  3. Investing

    What are the risks of having both high operating leverage and high financial leverage?

    In finance, the term leverage arises often. Both investors and companies employ leverage to generate greater returns on their assets. However, using leverage does not guarantee success, and the ...
  4. Fundamental Analysis

    What is the difference between cost and price?

    Consider how cost affects a product's price. Corporate expenses and the current cost of living both impact the final sticker price.
  5. Fundamental Analysis

    What are the main methods for calculating business costs?

    See why different economic actors use different methods for calculating costs, and learn how different methods can impact the taxes that actors pay.
  6. Operating cash flow can uncover a company's true profitability.
    Fundamental Analysis

    Cash Flow Statement: Reviewing The Cash Flow From Operations

    A company's ability to consistently generate positive cash flows from its daily business operations is highly valued by investors. Operating cash flow can uncover a company's true profitability ...
  7. Entrepreneurship

    Most Expensive Franchise Fees

    Here are a few of the most expensive franchises available for purchase in the United States.
  8. Personal Finance

    7 Companies With Big Advertising Budgets

    Here's what the corporations with some of the biggest advertising budgets in the U.S. spend their money on.
  9. Personal Finance

    Where Are Advertisers Spending Their Money?

    We list five outlets where advertisers are spending their money, and how these trends developed.
  10. Forex Education

    Understanding The Income Statement

    Learn how to use revenue and expenses, among other factors, to break down and analyze a company.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center