Definition

Noun: A cost or expense that remains constant in total amount regardless of changes in the level of business activity, production output, or sales volume. These are costs that a business incurs even when its operations are temporarily idle.

Usage

The term "fixed cost" is used in accounting, finance, and business management to describe essential, ongoing expenses that are not directly tied to production or sales volume. It is often contrasted with "variable cost."

Examples

• Rent is a fixed cost for most businesses; the amount paid each month does not change based on how many products are sold.
• When creating a budget, managers must account for fixed costs like insurance premiums and salaried employee wages.
• A company with high fixed costs needs to generate significant revenue just to cover its basic operating expenses.

Advanced Usage

• "To be saddled with high fixed costs": To have a business model burdened by large, unavoidable regular expenses, which can reduce financial flexibility.
  • The traditional airline industry is often saddled with high fixed costs for aircraft and maintenance.
• In break-even analysis, fixed costs are a key component for calculating the point at which total revenue equals total costs.

Variants and Related Words

• Fixed Expense: A synonym often used in personal finance and budgeting.
• Overhead (Cost): A broader term that often includes fixed costs along with other indirect business expenses.
• Sunk Cost: A related but distinct concept referring to a cost that has already been incurred and cannot be recovered, which should not influence future decisions.

Synonyms

• Standing charge
• Period cost
• Constant cost

Antonyms

• Variable cost
• Direct cost (in some contexts)

Related Phrases

• Fixed Cost Structure: Describes the composition and proportion of fixed costs within a company's total cost framework.
  • A software company typically has a very different fixed cost structure than a manufacturing plant.
• To cover one's fixed costs: To generate enough revenue to pay for the unavoidable regular expenses.
  • The new contract will help the firm cover its fixed costs for the quarter.

Noun

1. a periodic charge that does not vary with business volume (as insurance or rent or mortgage payments etc.)