1. What is Fixed Cost?

Fixed costs (TFC) are business expenses that remain constant regardless of production volume. These costs must be paid even when production is zero. Examples include rent, salaries, insurance, and equipment leases.

2. How Does the Calculator Work?

The calculator uses the fixed cost formula:

Where:

• \( TFC \) — Total fixed cost ($)
• \( TC \) — Total cost ($)
• \( TVC \) — Total variable cost ($)

Explanation: Fixed costs are calculated by subtracting all variable costs from the total costs of production.

3. Importance of Fixed Cost Calculation

Details: Understanding fixed costs is essential for break-even analysis, pricing decisions, and financial planning. Fixed costs help determine the minimum production volume needed to cover all expenses.

4. Using the Calculator

Tips: Enter total cost and total variable cost in dollars. Both values must be positive numbers, and total cost must be greater than or equal to variable cost.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between fixed and variable costs?
A: Fixed costs remain constant regardless of production volume, while variable costs change with production levels.

Q2: Can fixed costs change over time?
A: Yes, but not due to production volume changes. Fixed costs may change due to new contracts, inflation, or business expansion.

Q3: How do fixed costs affect pricing?
A: Fixed costs must be covered by the contribution margin (price minus variable cost) to achieve profitability.

Q4: Are salaries always fixed costs?
A: Only if they don't vary with production. Sales commissions would be variable costs, while base salaries are typically fixed.

Q5: What is the relationship between fixed costs and economies of scale?
A: As production increases, fixed costs are spread over more units, reducing the fixed cost per unit (economies of scale).