What is meant by fixed costs in financial terms?

Fixed costs refer to expenses that do not change regardless of the level of goods or services produced by a business. They remain constant over a specified period of time even if production volume increases or decreases. Common examples of fixed costs include rent, salaries of permanent staff, and insurance, which need to be paid irrespective of the company's operational output.

This concept is essential in financial analysis as it helps in understanding how costs behave and impact overall profitability. Businesses must cover these fixed costs even during periods of low sales, making their management critical for maintaining financial stability.

In contrast, the other options describe costs that are variable or depend on production and usage levels. Understanding the distinction between fixed and variable costs allows businesses to effectively plan their budgets, set prices, and analyze profitability thresholds.