Fixed cost refers to the expenses that a company or business incurs that do not vary with the level of production or sales. These costs remain constant regardless of the volume of goods or services produced by the business. Examples of fixed costs include rent or lease payments for a building, salaries of permanent employees, insurance premiums, property taxes, and other expenses that are necessary for the operation of a business but do not vary with the level of output.
Fixed costs are different from variable costs, which increase or decrease in proportion to the level of production or sales. By understanding and managing fixed costs, businesses can better plan their expenses and determine the level of revenue they need to generate in order to break even or make a profit.