fixed cost

Fixed Cost

A cost that remains constant, regardless of any change in a company's activity.

Notes:

A good example is a lease payment. If you are leasing a building at $2,000 per month, then you will pay that amount each month, no matter how well or how poorly the business is doing.

See also: Operating Expense, Operating Margin, Outlay Cost, Semi-Variable Cost, Sunk Cost, Variable Cost

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Fixed cost

A cost that is fixed in total for a given period of time and for given production levels.

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fixed cost

A cost that remains unchanged even with variations in output. An airline with 20 airplanes has the fixed costs of depreciation and interest (if the planes are partially financed with debt), regardless of the number of times the planes fly or the number of seats filled on each flight. Firms with high fixed costs tend to engage in price wars and cutthroat competition because extra revenues incur little extra expense. These firms tend to experience wide swings in profits. Compare variable cost.