Fixed Cost

Fixed costs are costs that a company incurs on a consistent basis regardless of production quantity or revenue. Any costs that are consistent with a company’s normal operations are included in the general fixed cost definition. These include any regularly paid and nonfluctuating insurance premiums, property taxes, rent or lease agreements, and employees’ consistent annual salaries.

To calculate fixed costs, add all of the fixed, recurring expenses listed above.

A company’s high fixed costs imply a need for similarly high production output or revenue to maintain profitability. In evaluating a company’s total cost structure, fixed cost is paired with its inverse, variable cost.

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