what is a fixed cost 
a fixed cost is a business expense that normally doesn t change with an increase or decrease in the number of goods and services produced or sold by the business fixed costs are commonly related to recurring expenses not directly related to production such as rent interest payments insurance depreciation and property tax since fixed costs are unrelated to a company s production of goods or services they are generally indirect costs a fixed cost is one of two different types of business expenses that together produce total cost the other is a variable cost mira norian investopediaunderstanding fixed costsfixed costs don t change with production levels also referred to as fixed expenses they are usually established by contract agreements or schedules these are the base costs involved in operating a business once established fixed costs do not change over the life of an agreement or cost schedule fixed costs are allocated in the indirect expense section of the income statement which leads to operating profit depreciation is a common fixed expense that is recorded as an indirect expense companies create a depreciation expense schedule for asset investments with values falling over time for example a company might buy machinery for a manufacturing assembly line that is expensed over time using depreciation another primary fixed and indirect cost is salaries for management any fixed costs on the income statement are accounted for on the balance sheet and cash flow statement fixed costs on the balance sheet may be either short or long term liabilities any cash used to pay fixed cost expenses is shown on the cash flow statement in general the opportunity to lower fixed costs can benefit a company s bottom line by reducing expenses and increasing profit companies examine fixed and variable expenses when analyzing costs per unit as such the cost of goods sold cogs can include both types of costs all costs directly associated with producing a good are summed collectively and subtracted from revenue to arrive at gross profit cost accounting varies for each company depending on the costs with which they work economies of scale can also be a factor for companies producing large quantities of goods fixed costs can contribute to better economies of scale because they can decrease per unit when larger quantities are produced that is per unit fixed costs drop when they get spread out over a larger number of units fixed costs that may be directly associated with production will vary by company but can include costs like direct labor and rent companies have some flexibility when breaking down costs on their financial statements and fixed costs can be allocated throughout their income statement the proportion of fixed to variable costs and how they re allocated can depend on its industry examples of fixed costsfixed costs include any number of expenses including rental and lease payments certain salaries insurance property taxes interest expenses depreciation and some utilities for instance someone who starts a new business would likely begin with fixed expenses for rent and management salaries all types of companies have fixed cost agreements that they monitor regularly while these fixed costs may change over time the change is not related to production levels instead changes can stem from new contractual agreements or schedules fixed cost vs variable costfixed expenses are usually negotiated for a specified period but can t decrease on a per unit basis when they are associated with the direct cost section of the income statement fluctuating in the breakdown of costs of goods sold unlike fixed costs variable costs are costs directly associated with production therefore they change depending on business output these costs can increase or decrease relative to production levels or sales 