Fixed and variable costs

Costs that stay put and costs that follow sales

In detail

Rent and salaries are paid whether or not anything sells; materials and shipping rise with each sale. The larger the fixed share, the more profit jumps when sales grow and the more it hurts when they fall.

Example

Where fixed costs are 30% of sales, a 10% drop in sales cuts profit sharply.

Related terms

Break-even point Operating margin SG&A expenses

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