Define fixed costs and variable costs.

Fixed costs are costs that remain constant in total within a relevant range of activity or production volume, regardless of changes in output or sales. These costs do not vary with changes in production or sales levels over a certain period and are incurred irrespective of the level of activity. Examples of fixed costs include rent, salaries of permanent staff, insurance premiums, and depreciation of fixed assets. Fixed costs are considered to be time-related and do not change with short-term fluctuations in production or sales. In contrast, variable costs are costs that vary in direct proportion to changes in production volume or activity levels. These costs fluctuate with changes in output or sales and increase or decrease as the level of activity changes. Examples of variable costs include raw materials, direct labor, sales commissions, and utilities. Variable costs are directly related to the level of production or sales and vary accordingly. The distinction between fixed costs and variable costs is essential for cost analysis, budgeting, and decision-making within an organization.