Fixed Cost refers to business expenses that remain constant regardless of the level of production or sales.
How It Works:
- A business incurs regular expenses such as rent or salaries.
- These costs do not change with production volume.
- Fixed costs are paid even if there is no revenue.
- They are considered while calculating total cost and profitability.
Benefits:
- Helps in budgeting and financial planning
- Provides clarity on minimum expense obligations
- Useful in break even analysis
- Supports long term cost management
Example:
A company pays ₹2,00,000 per month as office rent regardless of how much it produces or sells.