Fixed cost is the cost which accrue in relation to passage of time and which within certain output or turnover limit (relevant range), tend to be unaffected by fluctuations in the level of activity, that is output or turnover.
The key points in this definition:
- Fixed cost are time related;
- It remains fixed within the relevant range;
- It is unaffected by changes in the level of activity;
- Though it is called fixed cost in the short run, in the long run it may vary as for example, when the policy of management is to expand after 9 years, the fixed cost will increase no matter what volume of output is produced. therefore cost is sometimes called as ‘policy cost’