Fixed costs are expenses that do not change with the level of goods or services produced within a certain range. They remain constant regardless of the business activity over a specific period. Rent and property costs exemplify fixed costs because, regardless of how much a company produces or sells, the obligation to pay rent remains unchanged.
In contrast, labor costs that fluctuate with output represent variable costs, as they increase or decrease depending on production levels. Similarly, materials and supplies usage also varies with the volume of production, making them variable costs. Direct production expenses often include costs associated with manufacturing that can change significantly based on production levels, further categorizing them as variable.
Thus, the identification of rent and property costs as fixed costs is rooted in their consistency and predictability, which allows businesses to plan and allocate resources effectively without concern for fluctuations based on their operational output.