Which term describes costs that do not change based on the production volume?

Fixed costs refer to expenses that remain constant regardless of the level of production or sales volume. These costs do not fluctuate with changes in output, meaning that even if a business produces more or less, their fixed costs will still apply. Examples of fixed costs include rent, salaries of permanent staff, and insurance.

In contrast, variable costs change with the level of production. They increase or decrease depending on the volume of goods produced, such as material costs or direct labor that varies with production output. Direct costs are expenses directly attributable to the production of a specific product or service, often including variable costs. Indirect costs, on the other hand, are not directly tied to production levels and might represent overhead costs like utilities or administrative expenses, but they can also vary in some contexts.

Understanding fixed costs is crucial for budgeting and financial planning, as they must be covered by sales revenue for a business to remain profitable, regardless of production levels.