The term fixed overheads implies that the element of
cost does not vary directly in proportion to the output. In other words fixed overheads do not
change within a given range of activity. However the unit cost changes even though the fixed
overheads are constant in total within the given range of output. So, higher the level of
activity, the lower will be the unit cost or vice versa. The management is, therefore, faced with
a costing difficulty because it requires a representative rate for charging fixed overheads
irrespective of changes in volume of output.
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