What are fixed costs?

Fixed costs are expenses that remain constant regardless of the level of production or output. This means that these costs do not change as the volume of goods or services produced increases or decreases. Examples of fixed costs include rent, salaries of permanent staff, and equipment leases. These costs must be paid even if the business does not produce anything, making them a fundamental aspect of financial planning and management for organizations.

Understanding fixed costs is crucial for businesses as they help in determining the break-even point and overall profitability. Since these costs are unaffected by production levels, they represent a stable financial commitment that companies must evaluate when forecasting their cash flow and establishing budgets.