Fixed costs are expenses whose total does not change in proportion to the activity of a business. (Indirect costs may be fixed or variable.) For example, a retailer must pay rent and utility bills irrespective of sales volumes. Fixed costs include, but are not limited to, overheads (rent, insurance, and such) but can include direct costs such as payroll (particularly salaries).

Variable costs by contrast change in direct proportion to the activity of a business such as sales or production volume. In retail the cost of goods is almost entirely variable. In manufacturing, direct material costs are an example of a variable cost.

Along with variable costs, fixed costs make up one of the two components of total cost.

Unit fixed costs decline along with volume, following a rectangular hyperbola. As a result, the total unit cost of a product will decline as volume increases. Product costs, therefore, are always a function of volume. Fixed costs should not be confused with sunk costs.

It's important to realize that fixed costs are "fixed" only within a certain range of activity or over a certain period of time. If enough time passes, all costs become variable.

See also

• Cost accounting
• Variable cost
• Average fixed cost

Costs | Management accounting

Fixe Kosten | Állandó költség | Constante kosten | Fixné náklady | 固定成本