What's Happening?
Investopedia provides an in-depth analysis of fixed costs, explaining them as business expenses that remain constant regardless of production levels. Fixed costs include rent, salaries, and insurance,
which do not fluctuate with changes in production or sales. The article contrasts fixed costs with variable costs, which change based on production output. Fixed costs are crucial for calculating key business metrics such as breakeven analysis and operating leverage.
Why It's Important?
Understanding fixed costs is essential for businesses to manage their financial health effectively. Fixed costs impact profitability and financial planning, as they must be covered regardless of sales performance. Businesses can use fixed costs to strategize pricing models and forecast cash flow, ensuring they maintain financial stability. This knowledge is vital for startups and established companies alike, as it influences investment decisions and long-term sustainability.
