Difference Between Fixed And Fixed Cost

In the long run an organizations fixed costs must be covered in order for the company to continue to operate and continue to make profits. If these fixed costs fail to be covered, an organization will ultimately run out of money (and most likely go out of business). In utilities some costs are often ‘sunk’ costs. Sunk costs are defined as a cost that has already been incurred and thus cannot be recovered. A sunk cost differs from other, future costs that a business may face, such as inventory costs or R&D expenses, because it has already happened. Sunk costs are independent of any event that may occur in the future (Investopedia) and must not be confused with other costs. The latter (sunk costs) are not considered in price and output calculations; so it is important to determine the nature of a cost to ensure it is accounted for the relevant fixed costs in pricing decisions.

The costs incurred by the Home Depot can be classified into two categories: fixed costs and variable costs. Fixed costs are unaffected by changes in the level of activity are fixed costs (Edmonds, Tsay, & Olds, 2011). These costs are incurred regardless of whether or not units are produced. They are expressed as a certain cost for a given range of sales levels. Fixed costs remain the same for any sales level within a certain range. The net income indefinitely changes with a fluctuation in sales level even when the fixed costs remain unchanged. A rise in the sales level increases the net income and a fall in the sales level reduces the net income. Additionally, an increases in the fixed costs reduces the net income, and a drop in the fixed costs

This ratio plays an imperative role in representing the portion of the firm’s sales revenue that is not consumed or utilized by the variable costs hence contributes to the coverage of the firms fixed costs. Nonetheless, understanding the break-even point analysis is very important for the organizational managers (Gapenski, 2012). First, the point occurs as an indicator that the firm can effectively meet its expenses as the expenses equals the firms sales revenue realized in total. This assertion leads to a fundamental interplay between the fixed costs as well as the variable

From viewing the Fixed, Variable and Marginal Cost video, the several fixed costs associated with operating an automobile is interest on the bank or car notes, payment loans, insurance, taxes, license, registration, and depreciation. Seeing that fixed costs are defined by our textbook as short-run expenses that will remain constant and cannot be avoided or changed in the short run (Amacher & Pate (2013)). In this case, an owner of operating an automobile in effect will become subject to fixed costs anyway to parking its vehicle in their garage or never drives the vehicle. Furthermore, the several variable costs associated with operating an automobile is the gasoline costs, maintenance costs, and depreciation. Given that in our textbook, variable costs are will increase as more output is produced due to additional variable inputs being required as production increases (Amacher & Pate (2013)). In other words, an owner will change the care of operating an automobile based on how much driving or not driving the vehicle over time. Overall, an owner of operating an automobile will be faced with several different fixed costs and variable on a regular.

a) Fixed costs –Fixed costs are costs that constantly need to be paid by the business even if the business isn’t operating currently. For example this can be rent.

Taking pride in developing staff, implementing new technology, and assisting the leadership team in making financial decisions. Three basic fiscal management terms are fixed, variable, and semi-variable costs. Fixed costs are costs that do not vary in total when activity levels (or volume) of operation

Therefore, the costs of rent, permits, and licenses will remain the same because revenues do not affect them. Instead, the property owners set the rent prices with little consideration of the revenue of the enterprise, whereas the government sets the costs of permits and licenses based on policy and not the revenue of the business. On the other hand, a revenue increase signals an increase in operations of the company. Consequently, the costs of electricity and discounts will also increase because of their dependence on operational activities at the enterprise. Lastly, regarding salaries, the fixed component of it, comprising of managerial and other costs will remain the same. However, the variable component of the salaries will increase as the revenue increases. Similarly, as for the repair and maintenance, the fixed component will remain the same as the variable component increases. The sum effect will be an increase in mixed costs, which will be lower than variable costs due to the effect of fixed costs within the wider mixed

Fixed costs are defined as goods that shall not change overtime; it will continue to be the same price through a period of time, it may increase or decrease upon renewal times. An example that could be provide as below Rent with all-inclusive

Fixed cost or expense are variables that are not effected by the change in production or sales. A variable cost or expense is effected directly by a change in production volume or sales. We will categorize our Fixed and variable cost and expenses. First, we have variable data: executive salaries, insurance and property taxes. These items are located on schedule 7 of our Excel analysis. Second we have fixed variables, raw material direct labor, and inventory.

As an example, if fixed costs are $100, price per unit is $10, and variable costs per unit are $6, then the break-even quantity is 25 ($100 ÷ [$10 − $6] = $100 ÷$4). When 25 units are produced and sold, each of these units will not only have covered its own marginal (variable) costs, but will have also have contributed enough in total to have covered all associated fixed costs. Beyond these 25 units, all fixed costs have been paid, and each unit contributes to profits by the excess of price over variable costs, or the contribution margin. If demand is estimated to be at least 25 units, then the company will not experience a loss. Profits will grow with each unit demanded above this 25-unit break-even level.

All the costs by a company can be broken into two categories, fixed costs and variable costs. Costs that are independent of output are called fixed costs. Fixed costs remain constant throughout the relevant range and are usually considered sunk for the relevant range. Buildings and machinery are included inputs that cannot be adjusted in the short term. They are only fixed in relation to the quantity of production for a certain time period. The cost of all inputs is variable, in the long run.

Discretionary fixed costs are those fixed costs that management can easily change in the short-run (e.g., advertising). Committed fixed costs are those fixed costs that cannot be easily changed in the short-run (e.g., rent).

The essential relationship between fixed and variable costs is the same whether the budget is static or flexible. The key is that in the flexible budget, both fixed and variable costs are subject to change. In most cases,

Fixed costs are those which do not change with the level of activity within the relevant range. These costs will incur even if no units are produced. For example rent expense, straight-line depreciation expense, etc.

➢ Fixed costs - with high fixed costs as a percentage of total cost, companies must sell more products to cover those costs, increasing market competition.