FC stands for Fixed Cost. In order to know the meaning of the term fixed cost, it is necessary that we proceed to discover the etymological origin of the two words that give it shape:
-Cost, first of all, comes from Latin. Exactly it derives from “constare”, which can be translated as “to square”.
-Fijo, secondly, also emanates from Latin. In his case, it comes from the adjective “fixus”, which is equivalent to “nailed”. It is a word that is the participle of the verb “figere”, which can be translated as “nail”.
The idea of cost is used to name the economic outlay that is carried out to acquire or maintain a product or service. Something fixed, on the other hand, has stability or is unchanging.
According to abbreviationfinder, fixed costs, in this framework, are those that do not vary when there are small changes in the level of activity of a company. Variable costs, on the other hand, change with fluctuations in production volume.
Fixed costs are usually associated with the structure of the company. These types of costs involve periodic expenses (monthly, yearly, etc.) that can be foreseen. Variable costs, as their name suggests, vary more frequently and are more sensitive to changes in the firm’s output.
An example of a fixed cost is renting an office. Suppose that a law firm rents an office in the downtown area of a city for 25,000 pesos per month, signing a two-year lease. This monthly expense is a fixed cost: it doesn’t matter if the studio has five, twenty or one hundred clients, or if it bills 500,000 or 2,000,000 pesos; this cost will not change.
Labor is also often considered a fixed cost. If a company has fifty employees, who are paid a total of $100,000 in salary, this $100,000 per month is a fixed cost. It is common for employers to demand greater labor flexibility from governments so that the fixed cost of labor becomes a variable cost, susceptible to reductions through the elimination of social charges, cuts in compensation, etc.
In addition to all of the above, we can establish a series of hallmarks of the fixed cost, such as the following:
-There are two types of fixed costs: discretionary, which is the set of planned expenses that can be reduced and even made to disappear without the company’s infrastructure being damaged, and the compromised. This, for its part, cannot be reduced forcefully because doing so as well as eliminating it would have adverse consequences for the company.
-They can be anticipated and, in the same way, they can be easily controlled.
-The management of the company is the one in charge of making all the decisions that have to do with the aforementioned costs.
-Undeniably, it is closely related to the productive capacity of the company in question.
-It supposes a type of expense that must be assumed in an unquestionable and unavoidable way and must always be included in any type of accounting management plan that is carried out within the company.