Fixed Cost


DEFINITION of 'Fixed Cost'

A cost that does not change with an increase or decrease in the amount of goods or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a good or service, along with variable cost.


Loading the player...


An example of a fixed cost would be a company's lease on a building. If a company has to pay $10,000 each month to cover the cost of the lease but does not manufacture anything during the month, the lease payment is still due in full.

In economics, a business can achieve economies of scale when it produces enough goods to spread fixed costs. For example, the $100,000 lease spread out over 100,000 widgets means that each widget carries with it $1 in fixed costs. If the company produces 200,000 widgets, the fixed cost per unit drops to 50 cents.

  1. Operating Margin

    A ratio used to measure a company's pricing strategy and operating ...
  2. Applied Overhead

    A type of overhead that is recorded under the cost-accounting ...
  3. Semi-Variable Cost

    A cost composed of a mixture of fixed and variable components. ...
  4. Operating Leverage

    Operating measurement is a measurement of the degree to which ...
  5. Outlay Cost

    Any concrete business expenses that can be identified in the ...
  6. Operating Expense

    A category of expenditure that a business incurs as a result ...
Related Articles
  1. Investing

    What are Fixed Costs?

    Fixed costs are business expenses that do not change as the level of production goes up or down. They are one of two types of business expense, the other being variable costs. Variable costs ...
  2. Investing Basics

    Reading The Balance Sheet

    Learn about the components of the statement of financial position and how they relate to each other.
  3. Markets

    What Is A Cash Flow Statement?

    Learn how the CFS relates to the balance sheet and income statement as a part of a company's financial reports.
  4. Personal Finance


    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  5. Investing

    Operating Leverage Captures Relationships

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

    How Budgeting Works For Companies

    Learn how to break down and understand a corporate budget.
  7. Markets

    Introduction To Fundamental Analysis

    Learn this easy-to-understand technique of analyzing a company's financial statements and reports.
  8. Options & Futures

    Advanced Financial Statement Analysis

    Learn what it means to do your homework on a company's performance and reporting practices before investing.
  9. Economics

    What is Deadweight Loss?

    Deadweight loss can be applied to any deficiency caused by an inefficient allocation of resources.
  10. Mutual Funds & ETFs

    Are Vanguard ETF Fees Competitive?

    Find out if Vanguard is still a leading low-cost ETF provider, and why investors should care about operating expenses as much as commissions.
  1. How are fixed costs treated in cost accounting?

    Fixed costs are one of the two major inputs, along with variable costs, in cost accounting that are used by a company's management ... Read Full Answer >>
  2. What external factors can influence EBITDA margins?

    Companies often experience changes in their earnings before interest, taxes, depreciation and amortization (EBITDA) margins ... Read Full Answer >>
  3. What are some examples of positive correlation in technical stock market analysis?

    Some examples of positive correlation in technical stock market analysis are the relationship between commodity-producing ... Read Full Answer >>
  4. What are some of the advantages and disadvantages of absorption costing?

    Companies must choose between using absorption costing or variable costing in their accounting systems. There are advantages ... Read Full Answer >>
  5. How does the International Monetary Fund function?

    When unfunded capital expenditures and distributions are higher, the resulting fixed charge coverage ratio will be lower. ... Read Full Answer >>
  6. How does specialization help companies achieve economies of scale?

    Economies of scale is an economic concept that describes growth in output such that the costs incurred during production ... Read Full Answer >>
  7. Do production costs include all fixed and variable costs?

    In economics, production costs involve a number of costs that include both fixed and variable costs. Fixed costs are costs ... Read Full Answer >>
  8. Do production costs include the marginal cost of production?

    Production costs include all costs association with production. The marginal cost of production is the cost of producing ... Read Full Answer >>
  9. What's the difference between the production cost and the manufacturing cost?

    Production costs include any expenses associated with business activity for an organization. Manufacturing costs only include ... Read Full Answer >>
  10. How can a firm bring down its operating leverage?

    A company with a lower percentage of fixed costs and a higher percentage of variable costs uses less operating leverage. ... Read Full Answer >>
  11. How do fixed and variable costs each affect the marginal cost of production?

    The total cost of a business is comprised of fixed costs and variable costs. Fixed costs and variable costs affect the marginal ... Read Full Answer >>
  12. What is the difference between direct costs and variable costs?

    Direct costs and variable costs are expenses associated with production. Direct costs are expenses that can be directly traced ... Read Full Answer >>
  13. How can I use the load factor as an indicator for the profitability of the airline ...

    A high load factor indicates that an airline has full planes with most seats occupied by passengers. Airlines have high fixed ... Read Full Answer >>
  14. How does a company determine the right level of sales volume?

    A company determines the right level of sales volume by conducting a cost-volume-profit analysis. This helps a company figure ... Read Full Answer >>
  15. What are the different types of costs in cost accounting?

    Cost accounting is an accounting process that measures and analyzes the costs associated with products, production and projects ... Read Full Answer >>
  16. What impact does weather have on my investment in the airline industry?

    Weather changes may result in canceled flights and substantial losses for both consumers and the airline industry. Business ... Read Full Answer >>
  17. What are the main arguments in favor of the privatization of public goods?

    Public goods are defined by two characteristics. One is non-excludability, which means that even those who don't pay for ... Read Full Answer >>
  18. What are the three "nets" of an NNN lease?

    A triple net (NNN) lease is a type of real estate lease in which the tenant is responsible for paying the building's property ... Read Full Answer >>
  19. Is it better for a company to have fixed or variable costs?

    It is not necessarily better or worse for a company to have either fixed costs or variable costs. In fact, most companies ... Read Full Answer >>
  20. How does fixed overhead differ from varied overhead?

    Overhead costs are ongoing expenses a business incurs in its operations. They must be paid even if a company has a low volume ... Read Full Answer >>
  21. What sorts of factors increase cash flow from operating activities?

    Cash flow from operating activities is calculated by adding net income, total non-cash expenses and net change in working ... Read Full Answer >>
  22. How are semi-variable costs similar to fixed costs?

    Semi-variable costs and fixed costs are similar. Semi-variable costs consist of fixed costs and variable costs. A fixed cost ... Read Full Answer >>
  23. What is the difference between fixed cost and total fixed cost?

    A fixed cost is a cost that remains the same and does not depend on the amount of goods and services a company produces. ... Read Full Answer >>
  24. What is the difference between variable cost and fixed cost in economics?

    In economics, variable cost and fixed cost are the two main costs a company has when producing goods and services. A company's ... Read Full Answer >>
  25. How can Economic Order Quantity be used to lower inventory costs?

    Economic order quantity determines the optimal number of units a company should hold in its inventory. It determines the ... Read Full Answer >>
  26. What is the difference between gross profit, operating profit and net income?

    The terms profit and income are often used interchangeably in day-to-day life. In corporate finance, however, these terms ... Read Full Answer >>
  27. Are marginal costs fixed or variable costs?

    Marginal costs are a function of both fixed and variable costs. Fixed costs of production are considered the costs that occur ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Barefoot Pilgrim

    A slang term for an unsophisticated investor who loses all of his or her wealth by trading equities in the stock market. ...
  2. Quick Ratio

    The quick ratio is an indicator of a company’s short-term liquidity. The quick ratio measures a company’s ability to meet ...
  3. Black Tuesday

    October 29, 1929, when the DJIA fell 12% - one of the largest one-day drops in stock market history. More than 16 million ...
  4. Black Monday

    October 19, 1987, when the Dow Jones Industrial Average (DJIA) lost almost 22% in a single day. That event marked the beginning ...
  5. Monetary Policy

    Monetary policy is the actions of a central bank, currency board or other regulatory committee that determine the size and ...
  6. Indemnity

    Indemnity is compensation for damages or loss. Indemnity in the legal sense may also refer to an exemption from liability ...
Trading Center