Fixed costs are expenses that are predictable and do not fluctuate according to the goods produced or sold by the company. These are costs the firm needs to pay independent of the business activities. These include staff salaries, taxes, rent, insurance, licenses, depreciation of assets, etc.
Fixed costs can include direct and indirect expenses. Therefore, they can vary according to the industry of the company. For instance, the electricity bill of a manufacturing company varies according to the quantity produced. On the other hand, a software company’s electricity bill is a fixed cost.
The costs of a company consist of both fixed and variable costs. Variable costs are those that vary according to the fluctuations in the production of goods. Both fixed costs and variable costs are considered while calculating costs per unit. Fixed costs are recorded in the income statements, balance sheets, and cash flow statements.
