Fixed Cost

A cost that does not change with the change in the related activity i.e. increase or decrease in the frequency of activity will not have any effect on the cost itself.

Most of the time these costs are independent of underlying activities such as; units produced or sold, labour or machine hours worked.

Both manufacturing and non-manufacturing costs can have fixed components. For example rent of factory is manufacturing fixed cost. Insurance premium of office equipment and salaries of accounts department are non-manufacturing fixed cost.

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