What is a Fixed Cost?

A fixed cost may be a cost that doesn't change with a rise or decrease within the number of products or services produced or sold. Fixed costs are expenses that need to be paid by a corporation, independent of any specific business activities. Generally, companies can have two sorts of costs, fixed costs or variable costs, which together end in their total costs. Shutdown points tend to be applied to scale back fixed costs.

Companies have a good range of various costs related to their business. These costs are broken out by indirect, direct, and capital costs on the earnings report and notated as either short-term or long-term liabilities on the record. Together both fixed costs and variable costs structure the entire cost structure of a corporation. Cost analysts are liable for analyzing both fixed and variable costs through various sorts of cost structure analysis. Generally, costs are a key factor influencing total profitability.

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Companies have some flexibility in breaking down costs on their financial statements. Intrinsically fixed costs are often allocated throughout the earnings report. The proportion of variable vs. fixed costs a corporation incurs and their allocations can depend upon the industry they're in. Variable costs are costs directly related to production and thus change counting on business output.

Fixed costs are usually negotiated for a specified period of time and don't change with production levels. Fixed costs, however, can decrease on a per unit basis once they are related to the direct cost portion of the earnings report, fluctuating within the breakdown of costs of products sold.