Fixed cost

A cost that stays the same in total over a period whatever the volume sold, within a normal range of activity.

DefinitionA cost that stays the same in total over a period whatever the volume sold, within a normal range of activity.

A fixed cost does not change in total when volume changes, within the range the business normally operates in: rent, salaried staff, insurance, software subscriptions, depreciation. Because the total is fixed, the cost per unit falls as volume rises, which is why volume matters so much to margin. Variable costs, by contrast, move with each unit sold.

How it is computed

Classify each cost line by whether its total moves with volume. For a mixed cost, the high-low method splits it: variable rate = (cost at high volume − cost at low volume) ÷ (high volume − low volume); fixed part = total cost − variable rate × volume.

Example

Rent of $8,000 a month is $8 a unit at 1,000 units and $4 at 2,000. A utility bill of $5,000 at 1,000 units and $7,000 at 2,000 has a variable rate of $2 a unit and a fixed part of $3,000.

Where it goes wrong

Treating fixed as permanent: step costs jump when volume outgrows a shift, a warehouse or a team. Allocating fixed costs per unit and then cutting a product that still covers its variable cost. The full guide is fixed vs variable costs.

Articles that use this term

Board and management reporting · Distributors

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How to calculate cost to serve per customer in Excel: driver rates, allocation and contribution

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Break-even analysis: the formula, a worked example, and a break-even chart in Excel

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Contribution margin ratio: formula, contribution per unit and the contribution margin income statement

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Fixed vs variable costs: the difference, examples, and how to split a mixed cost

Fixed costs stay the same in total as volume changes; variable costs move with every unit. This page sets out the difference in one table, gives business examples of fixed, variable, semi-variable and step costs, and splits six months of a packing operation's costs with the high-low method, checked against Excel's SLOPE and INTERCEPT.

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Goal Seek in Excel: find the number that hits your target

How to use Goal Seek in Excel to work backwards from a target result to the one input that produces it. The steps and dialog fields, a profit model solved three ways (units for a target profit, price for a target profit, and break-even), the algebra that checks each answer, and when to use Solver or a data table instead.

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