Decomposing total costs as fixed costs plus variable costs. Quantity of output is measured on the horizontal axis. Along with variable costs, fixed costs make up one of the two components of total cost: total cost is equal to fixed costs plus variable costs.
In accounting and economics, fixed costs, also known as indirect costs or overhead costs, are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be recurring, such as interest or rents being paid per month. These costs also tend to be capital costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced) and unknown at the beginning of the accounting year. Fixed costs have an effect on the nature of certain variable costs.
For example, a retailer must pay rent and utility bills irrespective of sales. As another example, for a bakery the monthly rent and phone line are fixed costs, irrespective of how much bread is produced and sold; on the other hand, the wages are variable costs, as more workers would need to be hired for the production to increase. For any factory, the fix cost should be all the money paid on capitals and land. Such fixed costs as buying machines and land cannot be not changed no matter how much they produce or even not produce. Raw materials are one of the variable costs, depending on the quantity produced.
Fixed costs are considered an entry barrier for new entrepreneurs. In marketing, it is necessary to know how costs divide between variable and fixed costs. This distinction is crucial in forecasting the earnings generated by various changes in unit sales and thus the financial impact of proposed marketing campaigns. In a survey of nearly 200 senior marketing managers, 60 percent responded that they found the "variable and fixed costs" metric very useful. These costs affect each other and are both extremely important to entrepreneurs. [1]
In economics, there is a fixed cost for a factory in the short run, and the fixed cost is immutable. But in the long run, there are only variable costs, because they control all factors of production.
^Farris, Paul W.; Neil T. Bendle; Phillip E. Pfeifer; David J. Reibstein (2010). Marketing Metrics: The Definitive Guide to Measuring Marketing Performance, Upper Saddle River, New Jersey: Pearson Education, Inc. ISBN 0-13-705829-2. The content used from this source has been licensed under CC-By-SA and GFDL and may be used verbatim. The Marketing Accountability Standards Board (MASB) endorses the definitions, purposes, and constructs of classes of measures that appear in Marketing Metrics as part of its ongoing Common Language in Marketing Project Archived 2019-04-05 at the Wayback Machine.
production to increase. For any factory, the fix cost should be all the money paid on capitals and land. Such fixed costs as buying machines and land cannot be...
In economics, average fixedcost (AFC) is the fixed costs of production (FC) divided by the quantity (Q) of output produced. Fixed costs are those costs...
not the fixedcost of the factory building that do not change with output. The marginal cost can be either short-run or long-run marginal cost, depending...
variable (adjustable) T = total (fixed plus variable) C = cost These can be combined in various ways to express different cost concepts (with SR and LR often...
Fixed costs and variable costs make up the two components of total cost. Direct costs are costs that can easily be associated with a particular cost object...
of total cost or variable cost. Either of these derivatives work because the total cost includes variable cost and fixedcost, but fixedcost is a constant...
{\displaystyle AVC={\frac {VC}{Q}}} Average variable cost plus average fixedcost equals average total cost (ATC): A V C + A F C = A T C . {\displaystyle AVC+AFC=ATC...
(and hence the first derivative of variable cost). A typical average cost curve has a U-shape, because fixed costs are all incurred before any production...
irretrievable payment for the installation should not be deemed a "fixed" cost, with its cost spread out over time. Sunk costs should be kept separate. The...
cost is a term in networking to define the worthiness of a path, see Routing. Average costCost accounting Cost curve Cost object Direct costFixed cost...
production, the short-run total cost is equal to fixedcost plus total variable cost. The fixedcost refers to the cost that is incurred regardless of...
of failed advertising onto publishers.: 4, 16 Fixedcost compensation means advertisers pay a fixedcost for delivery of ads online, usually over a specified...
contributes to the coverage of fixed costs. This concept is one of the key building blocks of break-even analysis. In cost-volume-profit analysis, a form...
these "fixed costs" have become more important to managers. Examples of fixed costs include the depreciation of plant and equipment, and the cost of departments...
depreciation allowance) in contrast to short-term assets. Note that the cost of a fixed asset is its purchase price including import duties, after subtracting...
This level of fixed capital is determined by the effective demand of a good. Changes in the economy, based on capital, variable and fixedcost can be studied...
the scope of a project which is fixed and known for a fixedcost and time. In fact the scope can be a function of cost, time and performance, requiring...
depreciation constitutes about half the cost of running a car. The typical motorist underestimates this fixedcost by a significant margin. The IRS considers...
good. Two different types of cost are important in microeconomics: marginal cost and fixedcost. The marginal cost is the cost to the company of serving...
Global Information