What is the meaning / definition of Fixed Costs in the hospitality industry?
Fixed Costs, abbreviated as FC, are costs which are invariable, meaning they stay relatively constant in value despite changes in production or sales rates. Fixed Costs, mixed costs and variable costs make up the total costs at any business. In the hospitality industry Fixed Costs make up a large percentage of total costs incurring, as hotels require many expensive assets such as buildings, technology, furniture and equipment. Successful Hotel Operators are able to reduce Fixed Costs, thereby increasing profitability for hospitality businesses
Examples of Fixed Costs would be: rent, mortgage, salaries, insurance, taxes, utilities, land, building, internet, telephone plans, advertising cost, music entertainment, reservation expenses, newspaper subscriptions etc.
Fixed costs are typically found under operating expenses. The concept is used in financial analysis to find the break-even point of a business.
- Formula: Fixed Costs = Total Costs – Variable Costs
- Variable Costs
- Total Costs