Fixed Cost

Definition - What does Fixed Cost mean?

Fixed Cost is the cost that does not fluctuate in a short period of time, irrespective of changes in production, sales levels or other measures of activity. A fixed cost is a basic operating expense of a business that cannot be avoided, such as a rent payment. The total expense of an organization is the summation of fixed cost, variable cost and other miscellaneous costs.

Petropedia explains Fixed Cost

The oil and gas industry requires high amount of investment in the form of heavy equipment and machinery, large sites, skilled workforce, electricity, fuel to run machines, etc., all of which adds on the fixed as well as variable costs. There are varieties of fixed costs that oil and gas organizations need to pay. For example, the costs of regulatory compliance will not vary much with the level of production. The oil organization may have workers with long-term contracts, such as organization officers and consulting geologists who help them find oil. If the company buys some of its equipment or land, this will also be a fixed cost, because the cost will be constant no matter how much oil the land or equipment produces.

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