Fixed Expenses

Fixed expenses are those expenses which will be fixed all the time whether there is increase or decrease of the quantity of production or sale. There will no change in the amount of these type of expenses.

In simple words, there will no effect of fluctuations of production or sales on fixed expenses. We can give the examples of official salaries. In office, employees will get salary whether there is increase or decrease of production or sales. This is the fixed expense of business. Like this, there are lots of other examples like rent of office building and insurance bill etc. It is just opposite of variable expenses.

Because fixed expenses will change on the basis of time, so, we will also call it as period expenses. For example, we pay office salary on the month basis. It will increase after one year or two year or three year. One more example we can take of depreciation expense. For example, we have charged 10% on the building. So, depreciation cost is $ 1000 if building's cost is $ 10,000. There will no change if this year sale or production has increased by 20% or decreased by 20%.


Calculation of Fixed Expenses


If we have the amount of Break Even Point and profit volume ratio, we can calculate the value of fixed expenses.

Break even point ( in rs. ) = Fixed Expenses / P/V ratio


Break even point ( in rs. ) X P/V ratio = Fixed Expenses

Remember = 

• P/V ratio is = Profit / Volume or contribution / sale
• A company's break-even point is the point at which its sales exactly cover its expenses. 

Related 

• Cost Volume Profit Analysis
• Application of Marginal Costing in Managerial Decision Making