Fixed Cost and Variable Cost (2025): Understanding the Building Blocks of Business Finance

Fixed Cost
Fixed costs are business expenses that remain constant regardless of the level of production or sales. They do not change with the volume of output. Examples include rent, salaries of permanent staff, insurance, and depreciation. Even if a company produces nothing, it still incurs fixed costs.

Examples:
Office rent, Equipment depreciation, Manager salaries

Variable Cost
Variable costs are expenses that change directly with the level of production or sales. The more a company produces, the higher these costs become. If production stops, these costs typically disappear.

Examples:
Raw materials, Packaging costs, Wages for hourly workers