Definition
Fixed Cost is an expense incurred by a company that is not directly related to an increase or decrease in sales or production in the short term. Simply put, this type of cost is not dependent on the business activity. It is instead related to the period.
Example
Some examples of fixed costs are:a. Office space leaseb. Utility bills c. Company registration fees that may be paid as a one-time cost of monthly feesd. Cost of integrating a company's e-commerce platforms with its website e. Equipment cost f. Depreciation costs g. Insurance cost
Why it matters
Fixed costs mostly stay the same throughout a company’s manufacturing or sales process. For example, once a company has purchased and installed a machine, it will incur depreciation costs every year irrespective of the production/sales levels. Fixed costs are easier to account for as these do not change with the volume of sales. It is important to note, however, that while fixed costs do not change with a change in production/sales volume, the per-unit cost may change. This can impact the company’s net income during the financial period.