Fixed cost (also known as fixed cost) is relative to variable cost, which refers to the cost that the total cost can remain unchanged in a certain period and within a certain business scope without being affected by the increase or decrease of business volume; Variable costs refer to those costs whose total amount varies linearly with the change of business volume within the relevant range; Therefore, when the production is stopped, the variable cost no longer occurs, but the fixed cost still occurs, so the loss is the fixed cost.

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Fixed cost (also known as fixed cost) refers to the cost that the total cost can remain unchanged within a certain period of time and within a certain range of business volume, regardless of the increase or decrease of business volume.

Fixed costs can usually be divided into committed fixed costs and discretionary fixed costs.

Committed fixed cost:

Expenses that must be paid to maintain the business ability of enterprises to provide products and services, such as depreciation of factory buildings and machinery and equipment, property tax, house rent, salary of managers, etc. Because this kind of cost is linked with maintaining the business ability of the enterprise, it is also called the ability cost. Once the amount of such expenses is determined, it cannot be easily changed, so it is quite binding.

Discretionary fixed costs:

Fixed costs, such as new product development fees, advertising fees, employee training fees, etc. , formed by the planned budget determined by the enterprise management authority according to the operating and financial conditions before the start of the fiscal year.

Because the budget of such expenses is only valid during the budget period, enterprise leaders can determine the budgets of different budget periods according to the changes of specific conditions, so it is also called self-determined fixed cost. The amount of such fees is not binding and can be determined according to different circumstances.

The basic methods of strategic cost management include value chain analysis, competitor analysis and strategic cost driver analysis.

Value chain analysis:

Value chain analysis is a tool to seek and determine the competitive advantage of enterprises. Enterprise value chain analysis is to determine the competitive advantage of enterprises by decomposing enterprise activities, considering individual activities themselves and their relationships, weighing and selecting according to the strategic objectives of enterprises, and determining costs and benefits on the basis of various value activities. When the cumulative total cost of all activities in the enterprise value chain is less than that of competitors, it has a strategic cost advantage.

Competitor analysis method:

The competitor analysis method is to analyze competitors' value chain, advantages and disadvantages, reaction mode, competitive strategy and even core competitiveness, and consider their situation, actions and reactions in the competition, so as to provide reference for the formulation of enterprise decisions and the development of business activities.

Strategic cost driver analysis;

Strategic cost driver analysis is to analyze the root causes of cost, so as to control a large number of potential cost problems in the daily operation of enterprises. Including micro-level implementation cost driver analysis and enterprise overall level structure cost driver analysis.