what is fixed cost

Fixed cost is a term used in accounting and economics to refer to business expenses that do not change with the level of goods or services produced by the business. These costs tend to be recurring, such as interest or rent, and are not dependent on the quantity of production for the relevant period. Fixed costs are not permanently fixed; they will change over time, but are fixed, by contractual obligation, in relation to the quantity of production for the relevant period. Fixed costs can be direct or indirect and may influence profitability at different points on the income statement. Examples of fixed costs include rent, property tax, insurance, and depreciation. Fixed costs are different from variable costs, which change based on the amount of output produced. Knowing the fixed costs is important for business owners because they need to pay them regardless of whether the business made any income. Business owners can calculate their fixed costs by employing a three-step process: 1. Identify the fixed costs, 2. Add up the fixed costs, and 3. Divide the total fixed costs by the number of units produced.