What Are the Different Types of Fixed Operating Costs?, from wiseGEEK.
Fixed operating costs represent any cash outflows for business necessities that do not change over time. In most cases, all businesses have some type of fixed costs in their operations. Most of the costs relate to the company’s facilities, personnel, and equipment. In accounting, fixed operating costs can lead to a concept known as operating leverage. Operating leverage is a mix between a company’s fixed and variable costs, with higher fixed costs more likely to create riskier situations.
A company’s facilities contain any number of fixed operating costs depending on the size and scope of the facilities. Common fixed costs include rent, lease payments, depreciation, and property taxes. Most of these fixed costs remain the same the entire time a business stays in operation. The costs can, however, move up or down at different points in time; for example, when a lease runs out, the company may renew the lease but at a higher cost. Increased property taxes can also be a moving fixed cost when governments change tax rates.
Personnel can also represent a large portion of a company’s fixed operating costs. The fixed costs here arise from a company’s salaried employees. Most salaried employees include a company’s management team and other administrative salaried staff. Accountants often separate the salaries into different classifications, with each one relating to a specific division in the company. This allows accountants to assess each department in terms of unavoidable employee compensation.
