The economic destiny of an enterprise is associated with: income (i.e., goods sold on the market and the price obtained) and production costs within the fixed and variable categories.
Fixed costs are those costs that remain constant in their magnitude within a given period, regardless of changes in the volume of operations performed. Fixed costs are those that are not affected by measurements in sales volume, within a limit of the sales function capacity; they are broken down into fixed capacity costs and fixed operating costs.
Fixed production costs may be relevant under certain conditions: when future demand may exceed production capacity, when future sales may be lost due to inventory obsolescence, which probably merits new investments in property, plant and equipment and installed capacity capable of responding to new market demands and manufacturing new products or improving current ones.
The same author mentions that cost allocations and fixed cost ratios are based on criteria that are rarely precise enough to make a decision. Therefore, it cannot be assumed that fixed costs apply uniformly to all products or product lines.
Some jobs require more supervision, inspection or physical space in their manufacturing process than others, which is rarely revealed by the use of fixed cost coefficients. Therefore, the determination of fixed cost coefficients requires a predetermination of the expected level of operations, an objective that is not easy to achieve. In the next publication we will discuss variable costs.