We can define fixed cost as a cost that does not change with an increase or decrease in the amount of goods or services produced or sold.
Fixed cost is independent of any specific business activities as they have to be paid regardless.
Examples of fixed costs include rent, insurance premiums, loan payments e.t.c.
Formula to calculate fixed cost.
Total cost is an economic measure that sums all expenses paid to produce a product, purchase an investment, or acquire an equipment.
A variable cost is an expense that rises or falls in direct proportion to production volume.
Example:
The total cost of producing 20 pairs of sandals is Sh. 20,000 while its variable cost amounts to Sh. 10,000. Calculate the fixed cost of production.
Therefore, the fixed cost of the production is Sh. 10,000.
