Fixed and variable costs
Also called: fixed costs, variable costs, contribution margin, break-even
Fixed costs stay the same when sales change; variable costs rise and fall with sales. The split drives operating leverage and break-even.
Rent, most salaries and depreciation are largely fixed in the short run; raw materials, packaging and freight are largely variable. Revenue minus variable costs is the contribution, and break-even is reached when contribution equals fixed costs.
Learn more in these lessons
- Operating leverageWhy do some companies' profits swing much more than their sales?
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