Plain definition
Fixed costs do not change in total with output within a stated activity range and period, though fixed cost per unit falls as volume rises. Rent and a salaried site manager may be fixed for the month, but can change when a lease or capacity decision changes.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A workshop pays monthly rent and supervisor salaries whether it makes 500 or 1,000 units. At 500 units the fixed cost per unit is ; at 1,000 it is . The manager should not conclude that another 1,000 units carry no cost: a second shift or larger site may create a new fixed-cost step.
Why it matters
Calling all costs fixed can understate the cost of growth, while treating fixed costs as unit-variable can distort short-run contribution decisions.
Practical consequence
State the period and capacity range, list contracts that can change the total, and separate fixed total cost from fixed cost per unit in forecasts.
Try your own numbers
See the unit volume needed to cover fixed costs, and the planned profit at a chosen volume.
Break-even