Definition of Fixed Cost

Fixed Cost is a cost that a company must incur to run its operations, irrespective of the output generated. These costs are usually related to plants, machinery, building, etc., unlike variable costs, that are subject to vary based on different factors, such as the quantity of production and improvement in the production process can lead to lowering a business’s variable costs.


Example of fixed cost:

A company pays the rent of its production facility. The rent is a fixed cost that the company must incur no matter if it produced any income in that month/quarter/year.

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