Wages–you pay a project manager who is responsible for many facets of the business. Still using our online apparel store as an example, here are expenses that could be fixed costs:
#EXAMPLES OF FIXED EXPENSES HOW TO#
For example, since fixed costs remain the same regardless of volume, a business can its bottom line significantly if they can figure out how to drive volume up. The distinctions are extremely important and can inform a business owner on how to best grow their business. In general, fixed costs are compared to variable costs, another type of cost that behaves differently. if you sell more clothes online, will that cost increase as more clothes are sold? If not, then chances are that cost is a fixed cost. Another simple method to determine if a cost is fixed is whether or not that cost will scale with volume (sales volume) i.e. Put simply, a fixed cost is something a business or individual paid for that is not directly associated with the production of a good or service.įor example, if you sell clothes online and you work out of an office and pay rent, that rent expense is not directly contributing to the production, or selling of your products (clothes). What is a Fixed Cost? Achieving Economies of ScaleĪ fixed cost is just a way to label an expense. What is a fixed cost and how does it differ from any other business cost? Let’s find out. Business executives are always thinking of ways to cut or optimize costs, and today we’ll focus on a specific type of business cost, or expense. If you’re currently a business owner, a freelancer, or thinking of carving your own path, it may be good to understand some important business principles that can help guide you make sound decisions.
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