Fixed costs are as they are described fixed. In other words they are regular costs that occur every month and do not change.
The office rent.
The office electricity
The ten people who you employ full time.
etc
If you sell nothing you will still have to pay your fixed costs. Why is it important is because the higher the fixed cost is the more you have to sell to just break even and not loose money.
They are important as if they get out of control they will go up and set the bar higher to just break even to stay in business
The three types of cost you are referring to are Fixed, Semi Variable and Variable Costs. On a well though out COA the janitorial costs would fall under administrative costs. Thus fixed.
Examples are Sunk Costs, Fixed costs and Allocated Costs.
Cost can be either fixed cost or variable cost. Fixed costs are the costs that are fixed in nature and do not vary with the change in scale of production. Example of fixed costs are: factory rent. Variable costs vary with the change in scale of production. Example: Raw material cost Net Margin= Sales- Fixed cost- Variable cost Decrease in fixed costs lead to increase in margin of an organization; keeping all other things constant. Sometimes, benefit of decrease in fixed cost may be transferred to the consumer in the form of lower price. Lower price results in higher sales volume with lower sales margin per unit.
A firm would still operate if revenues are below total coots, but not if revenues are below variable costs. The reason is that as long as revenues are above variable costs, the firm will earn a difference to contribute to the fixed costs (fixed costs are costs that a company has to pay in the short-run whether it operates or not). If the firm stops operating in the short-run, it will have to pay for the full fixed costs (e.g., rent, some fixed labour) If revenues are below variable costs, for every unit of production, the company loses the difference and does not contribute to the fixed costs. It is more economical to shutdown in the short-run.
fixed and variable costs
The importance of knowing which costs are fixed and which costs are very important in making a business profitable. In order to budget effectively, one needs to know costs that will always be the same (fixed) and the ones that sometimes change (variable).
Absorption costing does not understand the importance of fixed costs. In absortption costing, fixed costs are absorbed to unit, therefore it is hard to distinguish between variable and fixed costs. And also, the variability of profit will cause confusion, the reason is that the net profit varies with both sales and stock changed under absorption costing. Absorption costing does not understand the importance of fixed costs. In absortption costing, fixed costs are absorbed to unit, therefore it is hard to distinguish between variable and fixed costs. And also, the variability of profit will cause confusion, the reason is that the net profit varies with both sales and stock changed under absorption costing.
what does fixed costs mean
Fixed costs are considered capacity costs because if a company expands, fixed costs will change. Additionally, if a company adds more resources, fixed costs will change.
Generally variable costs are relevant costs but if due to any decision fixed costs are also going to affected then fixed costs are also relevant costs.
Yes normally fixed costs are period costs because these costs have to be paid no matter production done or not.
When fixed costs decrease, what does this do for sales?
Operating leverage decreases as output increases because fixed costs are decreasing in relative importance and variable costs are increasing in relative importance as output rises. Thus, the degree of operating leverage is declining.
Fixed costs are assigned to all products. Variable costs are assigned only to the product that led to the cost.
Some committed fixed costs are the most difficult of fixed costs to change because they are required to maintain basic operations. For example, rent is a fixed cost that is difficult to change because it is bound by a lease.
E-commerce reduces fixed costs because it eliminates or reduces many fixed costs such as location, employees and insurance.
E-commerce reduces fixed costs because it eliminates or reduces many fixed costs such as location, employees and insurance.