In economics, fixed costs, indirect costs or overheads are business expenses that are not dependent on the level of goods or services produced by the business. They tend to be time-related, such as interest or rents being paid per month, and are often referred to as overhead costs. This is in contrast to variable costs, which are volume-related (and are paid per quantity produced) and unknown at the beginning of the accounting year. For a simple example, such as a bakery, the monthly rent for the baking facilities, and the monthly payments for the security system and basic phone line are fixed costs, as they do not change according to how much bread the bakery produces and sells. On the other hand, the wage costs of the bakery are variable, as the bakery will have to hire more workers if the production of bread increases. Economists reckon fixed cost as entry barrier for new entrepreneurs. The relation between fixed cost and variable cost can be modelled by an analytical formula.
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