What are fixed costs?

Fixed costs are defined as costs that remain constant regardless of the level of output produced by a business. These expenses do not change with the volume of goods or services produced, which means they must be paid even if production is zero. Common examples of fixed costs include rent, salaries of permanent staff, and insurance.

In contrast, costs that change with production levels are known as variable costs, which rise and fall in direct relation to the amount of output. Costs that fluctuate with market demand are also part of variable costs; they adjust based on the external market conditions and consumer demand. Lastly, costs that are only incurred during production would typically refer to certain variable costs related to direct materials or labor, rather than fixed costs, which are sustained over time irrespective of production activity.