fixed costs


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Related to fixed costs: Variable costs, direct costs, Semi Fixed Costs

Fixed Cost

An expense that does not change from time period to time period. For example, a company may rent a piece of property for $4,000 per month. A company often prefers to have fixed costs because they reduce uncertainty, but this is not always possible.
Fixed costsclick for a larger image
Fig. 42 Fixed costs. (a) The graph represents total payments made for the use of buildings, plant and equipment, etc., which must be met irrespective of whether output is high or low. (b) The graph represents the continuous decline in average fixed cost as output rises, because a given amount of fixed cost is spread over a greater number of units.

fixed costs

any COSTS that do not vary with the level of output because they are linked to a time base rather than to a level of activity (see Fig. 42). Sometimes called period costs, they include rent and rates and depreciation.
Fixed costsclick for a larger image
Fig. 71 Fixed costs. (a) The graph represents payments made for the use of FIXED FACTOR INPUTS (plant and equipment, etc.) which must be met irrespective of whether output is high or low.

(b) The graph represents the continuous decline in average fixed cost (AFC) as output rises as a given amount of fixed cost is spread over a greater number of units.

fixed costs

any costs that, in the SHORT RUN, do not vary with the level of output of a product. They include such items as rent and depreciation of fixed assets, the total cost of which remains unchanged regardless of changes in the level of activity. Consequently, fixed cost per unit of product will fall as output increases as total fixed costs are spread over a larger output. See Fig. 71 .

In the THEORY OF MARKETS, a firm will leave a product market if in the LONG RUN it cannot earn sufficient TOTAL REVENUE to cover both total fixed costs and total VARIABLE COSTS. However, it will remain in a market in the short run as long as it can generate sufficient total revenue to cover total variable costs and make some CONTRIBUTION towards total fixed costs, even though it is still making a loss, on the assumption that this loss-making situation is merely a temporary one. See MARKET EXIT.

References in periodicals archive ?
Building rental costs are classic examples of fixed costs.
Common fixed costs are those for which there is no direct relationship between the amount of the costs and the scope of services.
For this discussion, Special Interest (or pass-through) appropriations are not included in the list below because by their specific purpose when appropriated, they are fixed cost.
This alleviates the fear and pressure to meet high fixed costs, which in turn can be detrimental to business if you come across as desperate and needy.
We use the reported capacity utilization ratios and our estimates of total fixed costs to separate total costs into the cost of resources used and the cost of idle capacity.
The "fixed costs" term includes non-sunk fixed costs and sunk fixed costs, where the former refers to costs that do not change with production but may be avoided if production ceases and the latter refers to costs that are incurred regardless of production.
The portion classified as "customer-related cost" is the portion of the fixed costs of the distribution system that is size invariant.
However, there has been a recent shift in operator's strategies, with many now turning fixed costs into variable costs, an approach that favours a benchmarked operational excellence model to reduce costs.
The aim is to cut fixed costs by some EUR5m annually.
Adjusting to demand fluctuations without significantly increasing fixed costs