Fixed cost

A cost that remains constant in total over a specified range of activity, regardless of output or sales volume. Fixed costs can change when that range or time period changes.

Variable cost: A cost that changes in total as output or activity changes. Its behavior contrasts with fixed cost within the same relevant range.
Contribution margin: Sales revenue minus variable costs, available to cover fixed costs and then generate profit. Each unit's contribution helps cover fixed costs before profit begins.
Absorption costing: An inventory costing method that assigns both variable and fixed manufacturing overhead to products. It allocates manufacturing fixed costs to units and inventory.
Economies of scale: Reductions in average cost that occur as production scale increases. Spreading fixed costs across more output can lower average cost.
Total cost: The sum of fixed and variable costs for a given level of activity. It combines fixed cost with costs that vary as activity changes.
Break-even point: The level of sales at which total revenue equals total costs. Break-even volume depends on the fixed costs that contribution margin must cover.
Marginal costing: A costing approach that treats variable production costs as product costs and fixed costs as period costs. It handles fixed manufacturing costs differently from absorption costing.
Business risk: The risk that a company's operating income will fluctuate or fall because of its business activities. A high fixed-cost burden leaves less room to absorb sales declines.
Relevant range: The span of activity over which a cost relationship or assumption remains valid. Fixed costs remain constant only within this defined span.
Operating leverage: The effect of fixed operating costs on how strongly operating profit responds to sales changes. A larger fixed-cost base can magnify profit changes as sales shift.

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