| Definition: | Fixed costs refer to the costs associated with a product, that are fixed over a number of units. Thus regardless of the number of units produced and sold, the fixed costs remain the same. Examples of fixed costs are rent on equipment, utility costs, and research and development costs. With digital products, much of the fixed costs are actually sunk costs, and therefore non-recoverable costs. A large portion of the costs associated with digital products are fixed, and sunk, and not variable costs, which are more typical of traditional manufactured goods. Break even analysis, which is a tool that determines the volume at which a company must sell a product in order to break even, distinguishes between fixed and variable costs in its calculations.
|
