Listen to a Business English Dialogue About Fixed costs
Keith: Hi Sophia, do you know what fixed costs are in business?
Sophia: Yes, fixed costs are expenses that remain constant regardless of the level of production or sales, such as rent or salaries.
Keith: Exactly. Fixed costs don’t fluctuate with changes in production or sales volume, making them predictable and essential for budgeting.
Sophia: How do fixed costs differ from variable costs?
Keith: Variable costs, unlike fixed costs, fluctuate with changes in production or sales volume, such as raw materials or utilities.
Sophia: Can you give me an example of a fixed cost in a manufacturing business?
Keith: Sure, one example of a fixed cost in a manufacturing business would be the lease or mortgage payment for the factory or production facility.
Sophia: How do fixed costs impact a company’s break-even point?
Keith: Fixed costs are part of the total cost structure that a company must cover to break even, so the higher the fixed costs, the higher the level of sales needed to reach the break-even point.
Sophia: Are there any strategies businesses use to manage fixed costs?
Keith: Businesses can try to negotiate lower fixed costs, such as rent reductions, or invest in technology and automation to improve efficiency and reduce overall fixed expenses.
Sophia: What happens if a company cannot cover its fixed costs?
Keith: If a company cannot cover its fixed costs, it may experience financial difficulties, such as losses or cash flow problems, which could ultimately lead to business failure if not addressed.
Sophia: How do fixed costs impact pricing decisions for products or services?
Keith: Fixed costs are an essential factor in determining pricing because businesses need to ensure that prices cover both variable and fixed costs to generate profits.
Sophia: Thanks for explaining, Keith. Fixed costs seem to play a critical role in the financial health and sustainability of businesses.
Keith: Absolutely, Sophia. Understanding fixed costs is crucial for businesses to make informed decisions and manage their finances effectively.