A fixed cost means that it’s fixed in place, not moving...like the steely eyed gaze of Ahab. A fixed cost is one that you incur whether you sell one unit of a widget or a million. Variable costs…uh…vary. They change. Think about the cost of the plastic that goes into each widget. Sell only one widget and your plastics bill is low...sell a million widgets and it likely costs a lot.
But ok, that’s the bird's eye view. Example time.
You own an absinthe stand called Absinthe Pete's. Yeah, it’s 1925 and people are bored. In order to sell the absinthe, you had to have an absinthe milking factory, which costs you 400 bucks to build. It’s 1925, so things are cheaper and deadlier.
That 400 bucks for the factory is a fixed cost. Without that absinthe milker, you, uh...have nothing to sell. You also have to pay 50 bucks a month to rent the land on which the factory sits. That $50 rent is a fixed recurring cost; your cost of rent doesn’t change whether you sell one gallon of Gentleman Pete's Aged Reserve or 10,000 gallons...you still pay 50 bucks a month to rent the land.
Fixed. Recurring. Cost.
Related or Semi-related Video
Finance: What are Fixed Assets, Tangible...25 Views
finance a la shmoop what are fixed assets and no they're not what people
gratefully have when they leave the proctologist office fixed assets are
fixed as in fixed in place hard items things you can kick in you know whiz on [man tried to pull sword out of stone]
general rules for fixed assets one they're not used up in that accounting
year like inventory isn't a fixed asset and two they're typically in physical
form like a contract or a patent is not a fixed asset and three they're listed [contract and patent docs]
as property plant and equipment on the balance sheet at least usually fixed
assets you have land and you have plants and you have computers the software on
them all fixed assets and these are tangible ones so then what are
intangible fixed assets well basically things that are not
touchable or physically you know they're not feel about those would be things
like well our shmoop logo our shmoop guides intellectual property the stuff [Shmoop website images]
you're watching right now and other copy written material all that kind of stuff
intangible that famous factory smelting plant we're always talking about here [something gets thrown into industrial smelting pot]
from up fixed tangible asset the hundred eighty eight acres of the legal pot
growing farm owned by Mary Jane industries fixed asset the secret recipe [Mary Jane in her pot farm]
owned by coke which names the ingredient beyond sugar in the fizzy water that
makes coke oh so great intangible fixed asset anyway these big fat fixed assets
carry heft and illiquidity like you can't just quickly sell a hundred eighty
eight acres of a pot farm in well get a whole lot of money for it same deal with [Mary Jane unhappy with her attempt to sell the farm]
the smelting factory or eight miles of styrofoam packing peanuts [shower of packing peanuts]
even if they do as our proctologist says give you you know more cushion for the
pushin don't eat those things [doctor gives man a shot]
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