In the context of production costs, what does "fixed costs" refer to?

Fixed costs refer to expenses that do not change with the level of output produced by a business. Regardless of the quantity of goods or services the company produces, these costs remain constant over a specific period. Common examples of fixed costs include rent, salaries of permanent staff, and insurance premiums.

Understanding fixed costs is essential for financial planning and analysis because they impact a company's break-even point and overall pricing strategy. Unlike variable costs, which fluctuate based on production volume, fixed costs must be covered by the revenue generated regardless of how much, or how little, a company produces. This characteristic makes fixed costs an important consideration in calculating total production costs and understanding overall financial health.