Fixed Costs

Fixed costs are expenses that are predictable and do not vary based on the goods manufactured or sold by the company. These are expenses incurred by the company that are unrelated to its operations. These include employee salaries, taxes, rent, insurance, licenses, asset depreciation, and so on.

Direct and indirect expenses can be included in fixed costs. As a result, they may differ depending on the company’s industry. A manufacturing company’s electricity bill, for example, varies according to the quantity produced. A software company’s electricity bill, on the other hand, is a fixed cost.

A company’s costs include both fixed and variable costs. Variable costs are those that fluctuate in response to fluctuations in the production of goods. When calculating costs per unit, both fixed and variable costs are taken into account. Income statements, balance sheets, and cash flow statements all include fixed costs.

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