Which statement accurately describes fixed costs?

Fixed costs are costs that do not change with the level of production or sales within a certain range of activity, known as the relevant range. This means that whether a company produces a large volume of goods or very few, fixed costs—such as rent, salaries of permanent staff, and insurance—remain constant. This characteristic of fixed costs allows businesses to predict expenses more accurately in budgeting and financial planning.

In contrast, variable costs fluctuate based on production volume, increasing with higher output and decreasing when production slows. The other options mischaracterize fixed costs; for instance, saying they vary with changes in volume incorrectly suggests they have a direct correlation with production levels, which is not the case. Similarly, the idea that fixed costs decrease as production increases does not hold true, as fixed costs remain the same regardless of output within the relevant range. Fluctuating significantly with minor changes in activity would imply a level of variability not associated with fixed costs, further emphasizing their stability in budgeting contexts.