What is an example of a fixed cost for a business?

A fixed cost is an expense that does not change with the level of production or sales activity within a business. Rent for office space is a classic example of a fixed cost because it remains constant regardless of how much business activity occurs within a certain period.

For instance, a business that pays a set amount each month for its office rental must make that payment whether they have many customers or none at all. This characteristic makes rent a reliable, predictable expense that businesses can plan for in their budgets.

In contrast, a utilities bill, employee wages, and office supplies can fluctuate based on usage, hours worked, or purchasing needs, categorizing them as variable costs. For example, utilities might increase with more office activity, employee wages might change due to overtime, and office supplies can vary with business demand.