Fixe kosten

What Is Fixed Costs?

Fixed costs are expenses that do not change in total, regardless of the level of goods or services produced by a business within a specific period. These costs are incurred even if a company produces nothing. Understanding fixed costs is fundamental within managerial accounting and the broader economics of production, as they significantly influence a firm's profitability and operational structure. Unlike expenses that fluctuate with output, fixed costs remain constant, providing a stable base for a company's financial planning.

History and Origin

The distinction between fixed and variable costs became increasingly important with the advent of the Industrial Revolution in the late 18th and early 19th centuries. As businesses grew in complexity, particularly in industries such as textiles and railroads, there was a heightened need for more detailed financial information to manage operations effectively¹¹. Early forms of cost accounting emerged to track manufacturing costs and improve efficiency.

A significant contribution to the formal economic understanding of fixed and variable costs came with Maurice Clark's 1923 book, "Studies in the Economics of Overhead Costs." Clark's work extensively discussed these concepts, along with joint, sunk, differential, and residual costs, analyzing their behavior over short and long-run fluctuations from an economist's perspective. This publication is considered a major contribution to cost accounting literature of the 1920s and advocated for differentiating various cost types¹⁰. The challenges of resource scarcity and economic transformation during the World Wars further catalyzed the development of cost accounting, with concepts like standard costs and direct costing gaining prominence⁹.

Key Takeaways

• Fixed costs are business expenses that do not vary with the volume of goods or services produced.
• Examples include rent, insurance premiums, and salaries of administrative staff.
• They are critical for break-even analysis and setting pricing strategies.
• While fixed in the short term, all costs can become variable over the long term as a company can adjust its operational capacity.
• Understanding fixed costs helps businesses assess their minimum operating requirements and manage overhead costs.

Formula and Calculation

Fixed costs are a component of total costs. The total cost (TC) of production for a company is the sum of its total fixed costs (TFC) and total variable costs (TVC).

Where:

• ( TC ) = Total Cost
• ( TFC ) = Total Fixed Costs (e.g., rent, insurance, straight-line depreciation)
• ( TVC ) = Total Variable Costs (e.g., raw materials, direct labor, sales commissions)

Since fixed costs do not change with output, if a business wanted to calculate its fixed costs, it would simply sum all expenses that remain constant regardless of production volume for a given period.

Interpreting Fixed Costs

Interpreting fixed costs involves understanding their impact on a company's financial health and operational decisions. A high proportion of fixed costs can make a business less flexible in responding to changes in market demand. For instance, if demand falls, the company still incurs significant fixed expenses, potentially leading to losses. Conversely, a high fixed cost structure can lead to substantial profit margin improvements as production increases, because the fixed cost per unit declines.

Businesses often analyze fixed costs in relation to their revenue and total operating expenses to determine their operational leverage. Higher operating leverage, resulting from a greater proportion of fixed costs, means that a small change in sales volume can lead to a proportionally larger change in operating income. This is a key consideration in budgeting and strategic planning.

Hypothetical Example

Consider "Baker's Delight," a small bakery that produces artisan bread. The bakery has several fixed costs:

• Monthly rent for the storefront: $2,000
• Annual property insurance: $1,200 (or $100 per month)
• Salary for the head baker (who is paid a flat rate regardless of loaves produced): $3,500 per month
• Depreciation on the oven and other equipment: $200 per month

Even if Baker's Delight bakes zero loaves of bread in a given month, it still incurs these expenses.
Total monthly fixed costs for Baker's Delight would be:
$2,000 (Rent) + $100 (Insurance) + $3,500 (Head Baker's Salary) + $200 (Depreciation) = $5,800.

This $5,800 is the minimum cost Baker's Delight must cover each month before considering any variable costs like flour, yeast, or packaging materials, which depend directly on the number of loaves baked. This calculation is crucial for managing the bakery's finances and projecting its cost of goods sold.

Practical Applications

Fixed costs are a crucial element in various aspects of financial analysis and business operations:

• Tax Deductions: Businesses can often deduct certain fixed costs, such as rent, insurance, and interest on business loans, from their taxable income. The Internal Revenue Service (IRS) generally defines deductible business expenses as those that are "ordinary and necessary" for the industry⁷, ⁸.
• Pricing Decisions: Understanding fixed costs helps companies determine the minimum price at which they can sell products or services to cover their static expenses. This is essential for long-term pricing strategies.
• Financial Statement Analysis: On an income statement, fixed costs are typically categorized as part of general, administrative, or manufacturing overhead, providing insight into a company's cost structure.
• Capacity Planning: Businesses with significant fixed investments, such as manufacturing plants or specialized equipment (considered capital expenditures), must operate at a certain capacity level to efficiently spread these costs across more units of production.
• Economic Policy: Institutions like the Federal Reserve analyze the fixed cost structures of various industries, such as consumer finance companies, to understand their implications for pricing and interest rates. For example, high fixed operating costs for small loans can lead to higher break-even interest rates⁶. The Federal Reserve also categorizes its own operational expenses into fixed and variable components for budgeting purposes⁵.

Limitations and Criticisms

While the concept of fixed costs is fundamental, it has certain limitations and criticisms:

• Time Horizon Dependence: The classification of a cost as "fixed" is highly dependent on the time horizon. In the short run, many costs are fixed, but over the long run, virtually all costs become variable, as a company can adjust its scale of operations, sell assets, or change its entire business model⁴. For example, a building's rent is fixed in the short term, but a company can choose to move or downsize its facility in the long term, making that cost variable.
• Semi-Variable Costs: Many real-world costs are not purely fixed or variable but exhibit characteristics of both. These are known as semi-variable costs or mixed costs. For instance, utility bills often have a fixed service charge component plus a variable charge based on usage.
• Simplification of Reality: Critics argue that the strict dichotomy between fixed and variable costs can be an oversimplification of a firm's complex cost structure, potentially leading to inaccurate decision-making if not applied with careful consideration of specific business contexts and industry dynamics², ³.
• Consumer Perception: Research suggests that consumers do not always distinguish between fixed and variable costs when making purchasing decisions, especially with two-part tariffs (e.g., a fixed monthly fee plus a per-use charge). This "schmeduling" behavior can lead to different outcomes than economic theory might predict if consumers respond to average prices rather than marginal prices¹.

Fixed Costs vs. Variable Costs

Fixed costs and variable costs are the two primary classifications of expenses within a business, differentiated by their behavior in relation to production volume.

The key distinction lies in how these costs behave as production levels fluctuate. Fixed costs are committed expenses that a business must pay irrespective of its activity, providing a stable foundation but also requiring a minimum level of operations to cover them. Variable costs, on the other hand, are flexible expenses that directly scale with output, offering operational agility but also increasing total expenses as production grows. Understanding both is vital for comprehensive financial analysis.

FAQs

What are common examples of fixed costs?

Common examples of fixed costs include monthly rent for a factory or office space, annual insurance premiums, salaries of administrative staff or executives (who are paid a fixed amount regardless of production), property taxes, and the depreciation of machinery and equipment calculated using a straight-line method.

Why are fixed costs important for a business?

Fixed costs are important because they represent the baseline expenses a business incurs to simply exist and operate. They are crucial for calculating the break-even point, which helps a company determine the sales volume needed to cover all its costs. They also influence pricing strategies, profitability at different production levels, and a company's overall financial stability and risk profile.

Do fixed costs ever change?

While fixed costs are constant in total within a relevant range of production and a specific short-term period, they can change over the long term. For example, a business might sign a new lease with higher rent, purchase new machinery leading to increased depreciation, or expand its administrative team. These changes alter the level of fixed costs but do not change their characteristic of being constant over a given production range in the short run.

How do fixed costs affect profitability?

Fixed costs can significantly impact profitability, especially as production volume changes. When a company produces more goods or services, the fixed cost per unit decreases because the total fixed cost is spread over a larger number of units. This leads to higher profit margins per unit. Conversely, if production falls, the fixed cost per unit increases, which can quickly erode profit margins or lead to losses if sales cannot cover these static expenses. This concept is often referred to as economies of scale.

Are fixed costs considered in financial accounting or managerial accounting?

Fixed costs are considered in both financial accounting and managerial accounting, though their treatment and purpose differ. In financial accounting, they are recorded and reported in financial statements like the income statement. In managerial accounting, fixed costs are extensively used for internal decision-making, such as budgeting, cost-volume-profit analysis, and performance evaluation, helping management understand cost behavior and control.