A cost that remains constant in total within the relevant range is considered a fixed cost.Many fixed costs are incurred to provide production capacity to a firm. Fixed costs include salaries (as oppose to hourly wages), depreciation (computed using the straight-line method), and insurance. On a per unit basis, a fixed costs varies inversely with the level of activity: the per- unit fixed cost decreases with increases in the activity level and increases with decreases in the activity level. If a higher volume is achieved, then fixed costs per unit are lower.
In the long run, however,even fixed costs will not remain constant. Business will increase or decrease volume sufficiently that production capacity could be added or sold. Alternatively, management could decide to "trade" fixed and variable costs for one another.
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