Posted in Finance, Accounting and Economics Terms, Total Reads: 1406
Definition: Fixed Cost
There are usually 2 kinds of cost that a firm incurs – fixed cost and variable costs. Fixed costs are those which are constant and do not vary with the level of output produced. On the other hand, variable costs are those which directly vary with the level of goods/outputs produced.
To produce upto 10,000 cars, a company needs machines worth 1 Crore. This a fixed cost for the company as this cost is fixed even if the company does not produce any car. On the other hand, the amount of raw material, and hence its cost, directly varies with the no of cars produced. Hence the cost of raw materials is variable.