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Financial Terms | |
Fixed costs |
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Definition of Fixed costsFixed costscosts that do not change with increases or decreases in the volume of goods or services fixed costscosts that do not depend on the level of output.
Related Terms:Semi-fixed costs costs that are constant within a defined level of activity but that can increase or decrease when fixed expenses (costs)Expenses or costs that remain the same in amount, break-even charta graph that depicts the relationships among revenues, variable costs, fixed costs, and profits (or losses) breakeven pointThe annual sales volume level at which total contribution Breakeven pointThe sales level at which a company, division, or product line makes a Cash-flow break-even pointThe point below which the firm will need either to obtain additional financing ![]() contribution marginthe difference between selling price and Cost behaviourThe idea that fixed costs and variable costs react differently to changes in the volume of cost containmentthe practice of minimizing, to the extent operating leveragethe proportionate relationship between Opportunity costsThe difference in the performance of an actual investment and a desired investment overhead costsOverhead generally refers to indirect, in contrast to direct, Agency costsThe incremental costs of having an agent make decisions for a principal. Avoidable costscosts that are identifiable with and able to be influenced by decisions made at the business capitalization of costsWhen a cost is recorded originally as an increase Carring costscosts that increase with increases in the level of investment in current assets. carrying costscosts of maintaining current assets, including opportunity cost of capital. Costs Capitalized in StealthA particularly egregious form of aggressive cost capitalization costs of financial distresscosts arising from bankruptcy or distorted business decisions before bankruptcy. Direct costscosts that are readily traceable to particular products or services. Execution costsThe difference between the execution price of a security and the price that would have Financial distress costsLegal and administrative costs of liquidation or reorganization. Also includes Fixed-annuitiesAnnuity contracts in which the insurance company or issuing financial institution pays a Fixed assetLong-lived property owned by a firm that is used by a firm in the production of its income. Fixed assetAn item with a longevity greater than one year, and which exceeds a company’s Fixed asset turnover ratioThe ratio of sales to fixed assets. Fixed assetsThings that the business owns and are part of the business infrastructure – fixed assets may be fixed assetsAn informal term that refers to the variety of long-term operating Fixed AssetsLand, buildings, plant, equipment, and other assets acquired for carrying on the business of a company with a life exceeding one year. Normally expressed in financial accounts at cost, less accumulated depreciation. Fixed Assets Turnover RatioA measure of the utilization of a company's fixed assets to Fixed-charge coverage ratioA measure of a firm's ability to meet its fixed-charge obligations: the ratio of Fixed Charge Coverage RatioA measure of how well a company is able to meet its fixed Fixed costA cost that is fixed in total for a given period of time and for given production levels. fixed costa cost that remains constant in total within a specified Fixed costA cost that does not vary in the short run, irrespective of changes in any Fixed-datesIn the Euromarket the standard periods for which Euros are traded (1 month out to a year out) are Fixed-dollar obligationsConventional bonds for which the coupon rate is set as a fixed percentage of the par value. Fixed-dollar securityA nonnegotiable debt security that can be redeemed at some fixed price or according to Fixed-exchange rateA country's decision to tie the value of its currency to another country's currency, gold Fixed Exchange RateAn exchange rate held constant by a government promise to buy or sell dollars at the fixed rate on the foreign exchange market. Fixed ExpensesCost of doing business which does not change with the volume of business. Examples might be rent for business premises, insurance payments, heat and light. Fixed-income equivalentAlso called a busted convertible, a convertible security that is trading like a straight Fixed-income instrumentsAssets that pay a fixed-dollar amount, such as bonds and preferred stock. Fixed-income marketThe market for trading bonds and preferred stock. Fixed-income securityA security that pays a specified cash flow over a Fixed Interest RateA rate that does not fluctuate with general market conditions. Fixed-location storageAn inventory storage technique under which permanent Fixed overheadThat portion of total overhead costs which remains constant in size fixed overhead spending variancethe difference between the total actual fixed overhead and budgeted fixed overhead; fixed overhead volume variancesee volume variance Fixed price basisAn offering of securities at a fixed price. Fixed-price tender offerA one-time offer to purchase a stated number of shares at a stated fixed price, Fixed-rate loanA loan on which the rate paid by the borrower is fixed for the life of the loan. Fixed Rate LoanLoan for a fixed period of time with a fixed interest rate for the life of the loan. Fixed-rate payerIn an interest rate swap the counterparty who pays a fixed rate, usually in exchange for a Friction costscosts, both implied and direct, associated with a transaction. Such costs include time, effort, Funding CostsThe price of obtaining capital, either borrowed or equity, with intent to carry on business operations. Incremental costs and benefitscosts and benefits that would occur if a particular course of action were Indirect costscosts that are necessary to produce a product/service but are not readily traceable to particular products or services – see overhead. Information costsTransaction costs that include the assessment of the investment merits of a financial asset. Intangible fixed assetsNon-physical assets, e.g. customer goodwill or intellectual property (patents and trademarks). Longer-Term Fixed AssetsAssets having a useful life greater than one year but the duration of the 'long term' will vary with the context in which the term is applied. Market impact costsAlso called price impact costs, the result of a bid/ask spread and a dealer's price concession. Market timing costscosts that arise from price movement of the stock during the time of the transaction Menu CostsThe costs to firms of changing their prices. Period costsThe costs that relate to a period of time. Policy Acquisition Costscosts incurred by insurance companies in signing new policies, including expenditures on commissions and other selling expenses, promotion expenses, premium Political CostsThe costs of additional regulation, including higher taxes, borne by large and Preopening CostsA form of start-up cost incurred in preparing for the opening of a new store or facility. Price impact costsRelated: market impact costs Round-trip transactions costscosts of completing a transaction, including commissions, market impact Search costscosts associated with locating a counterparty to a trade, including explicit costs (such as Semi-variable costscosts that have both fixed and variable components. shortage costscosts incurred from shortages in current assets. Standard costsA budget cost for materials and labour used for decision-making, usually expressed as a per unit cost that is applied to standard quantities from a bill of materials and to standard times from a Start-up Costscosts related to such onetime activities as opening a new facility, introducing Sunk costscosts that have been incurred and cannot be reversed. Sunk costscosts that have been incurred in the past. sunk costscosts that have been incurred and cannot be recovered. Tangible fixed assetsPhysical assets that can be seen and touched, e.g. buildings, machinery, vehicles, computers etc. Trading costscosts of buying and selling marketable securities and borrowing. Trading costs include Transactions costsThe time, effort, and money necessary, including such things as commission fees and the Undepreciated Capital CostsThe tax definition of the value of an asset that is eligible for tax deprecation. variable costscosts that change as the level of output changes. Absorption costingA method of costing in which all fixed and variable production costs are charged to products or services using an allocation base. absorption costinga cost accumulation and reporting activity based costing (ABC)A relatively new method advocated for the Break-Even AnalysisAn analytical technique for studying the relationships between fixed cost, variable cost, and profits. A breakeven chart graphically depicts the nature of breakeven analysis. The breakeven point represents the volume of sales at which total costs equal total revenues (that is, profits equal zero). CapitalizeIn Finance: to find the present value of a stream of cash flows. Cash flow from operationsA firm's net cash inflow resulting directly from its regular operations Contribution marginThe margin that results when variable production costs are subtracted cost structurethe relative composition of an organization’s Operating leveragefixed operating costs, so-called because they accentuate variations in profits. operating leverageDegree to which costs are fixed. Optimum selling priceThe price at which profit is maximized, which takes into account the cost behaviour of fixed and variable costs and the relationship between price and demand for a product/service. scattergrapha graph that plots all known activity observations sunk costA cost that has been paid and cannot be undone or reversed. Variable costingA method of costing in which only variable production costs are treated as product costs and in which all fixed (production and non-production) costs are treated as period costs. 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