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Sometimes referred to as fixed overhead expenses, fixed overhead costs are business expenses that are related to the ongoing operation of a company, and that tend to remain more or less constant from one billing period to the next. The level of output of the goods and services produced by the business have no impact on the amount of these fixed expenses. In addition, fluctuations in the amount of sales revenue generated during the period also does not change the amount of these obligations. Businesses of any size and type will have some sort of fixed overhead expenses, often relating to costs such as rental or mortgage payments on the facilities used for the operation, various types of insurance plans that protect the business, and even the salaries of employees who are paid a flat amount per pay period, rather than a wage based on an hourly rate.
One of the more common examples of fixed overhead costs has to do with the rental cost or the cost of the mortgage payment made on the facility in which the company operates. In most cases, the monthly amount of the rental will not change, and the mortgage payments are likely to be uniform as well. As with all types of fixed expenses, this type of overhead cost can be planned in the budget and will remain the same no matter what is happening in terms of the production or the revenue generation of the company.
Insurance coverage of different types is also part of the fixed overhead costs of most businesses. This includes insurance protection related to the physical facility itself, coverage that protects the business from on the job accidents, and even insurance plans that protect the company from injuries sustained by non-employees while visiting the site of the operation. Typically, expenses of this type remain the same for most of an insurance year, making it easy to budget those amounts.
Another of the several fixed overhead costs that companies are highly likely to experience involves salaries paid to employees who are not classed as hourly. Depending on governmental regulations that may apply, the salaries of administrative personnel only may be classed in this manner. In other settings, all salaried employees who are provided with a fixed amount each pay period are considered to constitute part of the overall fixed overhead cost, regardless of whether they are classed as administrative employees or not.
It is important to note that other types of fixed overhead costs may also apply, depending on the nature of the company operation. If office equipment is leased at a flat rate per month, it may be classed in this manner. Usually, any ongoing expense that remains the same and does not change when there is a shift in production or the sales generated by the company, it can be considered fixed overhead of some type.
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