Fixed Costs

Fixed costs in a business are those that remain constant over an accounting year irrespective of the level of production. These include items such as salaries, commercial rent or mortgage payments, amortisation and depreciation, interest payments on fixed-rate loans and bonds, and insurance costs. Businesses with high fixed costs by definition need to maintain a constant and sustainable level of revenues in excess of their fixed cost base to remain profitable. On a unit basis, fixed costs will still fluctuate as production volumes rise and fall.