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fterms - Human-edited financial dictionary

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Yet written originally in understandable terms.
fterms provides clear, simple financial information.

Fixed cost

Fixed cost is any expense which stays at a constant level, regardless of change that may appear in the activity of the business. In general, fixed costs are often related to time length, although they are not necessarily so. Some examples are rental payments, utility costs, and salary-based employment costs. Fixed costs are in contrast with variable costs, which may fluctuate based upon the company's activity, and are often based upon volume, such as wage-based employment, cost of materials for producing goods, etc.

Fixed costs can be added with variable costs to reach the total cost figure. This is a form of a production function. At times a third group called semi-variable costs is introduced, but it is not always used and for this example, costs can be attributed to one of the previous two categories.

Marginal cost is what cost the company would incur for producing one more of a certain good or service. In such an example, the fixed costs would already have been present when producing the lesser amount of goods, therefore, the increase of one would only add marginal cost. In theory, the production of the next item should be cheaper in terms of cost than the previous item was, as well as the average of the previous items.

Synonyms, related terms and other keywords:

• Marginal cost
• Semi-variable cost
• Variable cost