Fixed Cost
Short definition
A fixed cost does not change with volume inside a relevant range. Accrual timing need not match cash; rent, salaries, depreciation and interest are “fixed” in different ways.
Detailed explanation
Split accounting-fixed from cash-fixed: depreciation is not cash, rent is cash, interest is both. Step-fixed costs jump at a shift or a new plant; the DOL formula misses that jump.
Items that look fixed in the short run are managed in the long run (plant closure, headcount). Classification follows the decision horizon. IFRS 16 splits rental cash into interest and depreciation; the cash fixedness remains.
Why it matters for the CFO
Break-even, cash burn and DOL all rest on fixed cost. A wrong split breaks a “variabilise” programme and the price floor.
How to read it
Fixed cost / contribution gives break-even volume. Cash fixed items live in the 13-week budget; accrual fixed items live in the monthly P&L.
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What to learn next
Definitions are educational. They are not investment, credit or tax advice.