CIPS Managing Ethical Procurement and Supply (L5M5) Practice Test

The term that describes costs which remain constant regardless of the levels of production is fixed costs. Fixed costs are expenses that do not change with the quantity of goods or services produced by a business. These can include rent, salaries, and insurance, which are incurred regardless of how much or how little a company produces.

This constancy makes fixed costs critical for businesses to understand when budgeting and forecasting, as they will affect profitability irrespective of the production volume. In contrast, variable costs fluctuate with production levels; operational costs cover a broader category of expenses, and sunk costs refer to past expenditures that cannot be recovered. Understanding fixed costs is essential in managing financial planning and effective decision-making in procurement and supply chain management.