A procurement officer for a manufacturing organisation is negotiating with a supplier over the provision...

Fixed costs are costs that do not vary directly with production volume. Staff salaries and building rents remain largely constant regardless of output levels and therefore meet the definition of fixed costs. Raw materials and temporary labour vary with production levels and are therefore variable costs. Warehouse logistics often fluctuate with throughput and activity, making them variable or semi-variable rather than fixed. Understanding fixed versus variable costs is essential for buyers when assessing supplier justifications for price increases, enabling more informed and credible cost-based negotiations.