What is Fixed and Variable Costs?
Fixed costs stay constant over a relevant range of activity (rent, salaries, depreciation). Variable costs change in proportion to activity (raw materials, sales commissions). The split is essential for cost-volume-profit analysis.
How It Works
- Classify each cost as fixed, variable, or mixed.
- Split mixed costs using the high-low method or regression.
- Use in pricing, break-even, and profit planning.
Saudi Context
Saudi manufacturers with heavy SASO compliance and Saudization-driven payroll often see fixed costs at 40 to 60% of total — a key driver of operating leverage.
Example
A Saudi factory has SAR 3 million annual fixed costs and SAR 25 per unit variable cost. Selling at SAR 50/unit, break-even is 120,000 units.