A fixed cost is an expense that does not change when sales or production volumes increase or decrease.
For example, a gym has $18,000 in monthly fixed costs — including $8,000 in rent, $6,000 in staff salaries, $2,500 in insurance, and $1,500 in equipment lease payments — that must be covered whether the gym has 50 members or 500.
Why it matters: They create operational leverage; once fixed costs are covered, every additional sale contributes heavily to net profit.
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