Fixed cost

Fixed cost remains fixed for a given level of output and period of time viz, salaries, administrative expenses, occupancy overheads like lighting. In deciding the particular cost as fixed cost, you should look behavior of the cost but not the quantum of money. Examples for the fixed cost will be rent of premises, depreciation on fixed assets and interest on loan. All these costs though vary year to year will be treated as fixed cost because these will not vary with the sales. However, there are opinions that in some of the cases the interest will be treated as variable cost and in some cases the same will be treated as fixed cost. This is due to the effect of interest on working capital. Since, now-a-days working capital is being financed as demand loan, commercial paper and bills. In such cases interest is a fixed cost. In break-even analysis though, our calculations are based on short-run information in order to reveal the current profit structure of the business.