Fixed Costs
Characteristics of Fixed Costs
Fixed costs remain constant in total regardless of changes in production or sales volume within the relevant range. However, fixed cost per unit decreases as production increases because the total cost is spread over more units.
- Factory rent
- Property taxes
- Insurance premiums
- Executive salaries
- Straight-line depreciation
Tip
Remember: Total fixed cost stays constant, but fixed cost per unit changes with activity.
Summary
Fixed costs create operating leverage and significantly influence profitability as sales volume changes.