There are two very important types of costs in business.

If you understand them well, managing money and setting product prices will become much easier.

Let's start with fixed costs.
These are expenses that do not change, regardless of whether you produce more or less.
They must be paid every month, every year, with no way to avoid them.
Fixed costs include office rent, employee salaries, insurance, loan interest, and depreciation of machinery.

Why should you care?
Because these are fixed burdens that must be covered when setting prices, regardless of whether sales are good or bad.

On the other hand, variable costs change with the level of production.
The more you produce, the higher the costs;
reduce production, costs decrease.
Variable costs include raw materials, direct labor, energy, packaging, and transportation.

An interesting point is that fixed costs actually influence a company's investment decisions.
If labor costs are very high, the company might decide to buy automated machinery, which increases fixed costs but reduces variable costs.

When combining both types, you get the total cost.
This figure tells you how much you need to sell to break even, and how much profit you can make beyond that.

Understanding what fixed costs are and what variable costs include helps you plan production better, control expenses wisely, and make confident investment decisions.
This is the foundation of good business management, no matter what kind of business you run.