Fixed costs do not repeatedly modify in answer to differences in sales. They are the cost of current industry structure, and will vary merely when an active choice is made to modify that. Business structure means the surroundings or environments that are necessary to be in place to produce efficiency – such as the place of work, the tools used at work, and the employees who function the business. They are an important portion of commerce; they are internal, or domestic. Some instances are rent, and the simple salaries of stable staffs. While fixed costs do modify from every period, they do not change regularly and most particularly they do not repeatedly change in answer to differences in action. Fixed costs do not change instant just because it was made a lots of sales in a month. These expenses will be continual through the highest sales months and the lowest trough months, comparing to variable costs, which typically modify with changes in sales. They are the cost of the replaceable incomes, not portion of business organization. They can be bought from outside, every day or once-a-month, in the amounts that require pleasing direct demands.
The practice of particular influences is self-determining of the fabrication measure, no matter if these efforts have been committed in the short run or is less than concern for the long run fabrication strategy. For instance, cafeteria requisites pay a yearly license fee each year to activate rightfully. The charge is a fixed cost since it does not be determined by on how many consumers are attended every year. Presume a businessperson is developing to open a cafeteria and has not until now bought any tools to operate the business, paid any fee, or engaged any agreement. In consequence, it is a long-run choice problem and the once a year authorization fee to be paid for the next year will be a long-run fixed cost. Visibly, if fixed costs are the expenses that do not differ with the amount of production made, there may effortlessly be long-run fixed costs. The report, “there are no long-run fixed costs,” has remained passed down vaguely or even wrongly in economic classes, explanation and modification are overdue. I absolutely value my time when I price comparison shop, there is so much competition in the market nowadays, but besides price, I always look for convenience for service and quality for products.
Fixed cost can be defined as costs that do not change with the level of output or the sales revenue. For instance, rent on a building or equipment is a good example because it remains relatively the same, at least for a considerable period of time (Myers, 2004). On the other hand, variable costs change depending on the level of output or sales revenue. Labor and raw materials costs are good examples of variable costs. As the output increases the cost of labor and raw materials/input materials also increases (Khan & Jain, 2007).
As a consumer taking charge of one’s own financial future, there are a wide range of lessons that one can take from these concepts. Despite the fact that the concepts of fixed and variable costs may be reasonably simple, they play a major role in the world of business. For instance, one can be able to manage his/her personal finances effectively, based on these concepts. This can be achieved by using these concepts to accumulate income through establishing a culture of saving and ensuring proper planning for reduced expenditure. It is worth noting that for one to establish a culture of saving, one has to have a clear understanding of the total expenses, which include fixed and variable costs.
Another lesson one can take from the business concepts of fixed and variable costs is the need to live within one’s means. This is because of the fact that in most cases, one’s salary is a fixed source of income that is only increased on an occasional basis. As a result, expenses like rent and interest payment on loans among other fixed costs will need to be settled from this salary on a monthly basis. On the other hand, variable costs such as monthly bills for utilities like water and electricity will also need to be settled from the same salary. As a result, one must ensure that the sum total of fixed costs and variable costs never exceed his/her salary income, at any given period. Furthermore, to increase saving for future prosperity, one should try to minimize some variable costs to reasonable amounts and also avoid any unnecessary variable cost.
One should factor in the value of own time when pricing comparison shop since that time may be used for other constructive and economical gains.