What Is a Fixed Cost?


Running costs that take time to wind down: usually rent, overhead, some salaries. Technically, fixed costs are those that the business would continue to pay even if it went bankrupt.

In practice, fixed costs are usually considered the running costs. These are static expenses that do not fluctuate with output volume and become progressively smaller per unit of output as volume increases.

Fixed costs are an important assumption for developing a break-even analysis. The standard break-even formula estimates a break-even point of sales based on per-unit price or revenue, per-unit variable costs, and fixed costs.

For more on this, see our article on break-even analysis, along with the entries on floating liabilities and fixed liabilities.

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