Financial Education

Fixed costs are expenses that stay relatively constant within a given level of sales. For example, the cost of renting a corporate headquarters is likely to be a constant amount (say, $100,000 per month) regardless of how much revenue the company generates.

Variable costs, as the name implies, vary with the amount of revenue. A good example is sales commissions. More commissions will be paid if the company generates $2 million in sales than if it generates $1 million.

For more information, see all articles on: Common Size Analysis, Financial Statement Analysis, Fundamental Analysis, Ratio Analysis

See also:

Operating Leverage

Determining Inventory Cost

Operating Leverage: A Case Study

Risk and Return in Fixed Income Arbitrage

Active Management in Fixed Income Portfolios