Fixed cost
A fixed cost remains constant in total within a stated relevant activity range and time period. As output increases within that range, fixed cost per unit falls because the same total is spread over more units. Outside the range or over a longer planning horizon, the total may change. Fixed does not mean unavoidable: the decision and contractual terms determine whether the cost can be saved.
Worked example
Rent is $12,000 per month for a factory with capacity up to 3,000 units. At 2,000 units it is $6 per unit; at 3,000 it is $4.
Common mistake
Do not keep fixed cost per unit constant when flexing activity, or assume the total remains unchanged beyond the relevant capacity range.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | MA | Direct | September 2026–June 2027 |
| FIA | FMA | Direct | September 2026–June 2027 |
