What are Fixed Expenses?

Fixed expenses are expenses that do not change in conjunction with the level of activity. These expenses tend to be quite stable, not changing much from month to month. Many of these expenses are incurred under contractual arrangements that require a business to continue making them for an extended period of time.

How Variable are Fixed Expenses?

Fixed expenses tend to be fixed within a certain range of activity, but will vary outside of that range. For example, a business may rent administrative space that is a fixed cost; however, sales double, requiring the addition of more staff than can fit into the existing facility, calling for an increase in rent expense to accommodate the additional staff.