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Fixed Costs

Definition:

Fixed costs are those expenses that do not change regardless of the business revenue. Typically found in operating expenses such as Sales General and Administrative, SG&A. Items that are usually considered fixed costs are rent, utilities, salaries, and benefits.

Example:

These are examples of what can be listed as an operating expense, not every company will have the following line items.

Amounts in thousands.

Fixed Costs Example

Book Excerpt:

(Excerpts from Financial Intelligence, Chapter 8 – Costs and Expenses)

You might think that COGS is the same as “variable costs” – costs that vary with the volume of production – and that operating expenses are fixed costs. Materials, for example, are a variable cost: the more you produce, the more material you have to buy.  And materials are included in COGS.  The salaries of the people in the HR department are fixed costs, and they’re included in operating expenses. Unfortunately, things aren’t so simple here. For example, if the supervisors’ salaries are included in COGS, then that line item is fixed in the short run, whether you turn out one hundred thousand widgets or one hundred fifty thousand.

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