Fixed costs represent those expenses a business incurs that do not fluctuate with production levels or actual sales volumes. Examples of fixed costs include rent, property taxes, and salaries of permanent employees. For instance, a company might pay $2,000 per month for office rent; this amount remains constant whether the company produces 100 units of goods or 1,000 units.

Understanding fixed costs is important for businesses as it helps in determining the break-even point and planning budgets. When fixed costs are high, businesses need higher revenue to achieve profitability. Conversely, with lower fixed costs, it becomes easier to maintain financial stability during periods of low market demand.

Businesses often strategically manage fixed costs to ensure they align with overall operational goals. For instance, by automating certain processes, a business might reduce labor costs, which can be considered fixed costs if related to permanent employees.