Financial modelling terms explained

Fixed Costs

Fixed costs are costs that do not change with an increase or decrease in the number of goods or services produced or sold. They are expenses that have to be paid by a company, independent of any specific business activities.

What Are Fixed Costs?

Fixed costs are costs that do not change with the level of production. For a manufacturing company, for example, rent and insurance payments are fixed costs. They remain the same whether the company is producing one item or 1,000 items. In contrast, variable costs change with the level of production. For the manufacturing company, variable costs would include the cost of the materials used in production and the wages of the workers.

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