Which of the following best describes fixed costs?

The best description of fixed costs is that they are incurred regardless of production levels. This characteristic is fundamental in understanding fixed costs, as they remain constant within a specific range of output and do not fluctuate with changes in production volume. Examples of fixed costs include rent, salaries, and insurance—expenses that an organization must pay irrespective of how much they produce or sell.

In contrast, other choices describe cost behaviors that do not align with the nature of fixed costs. For instance, costs that increase with higher production volumes are considered variable costs, which directly correlate with the level of output. Additionally, costs that vary with sales levels also refer to variable costs, which differ from fixed costs in their responsiveness to changes in sales volume. Lastly, suggesting that fixed costs include only direct materials costs is misleading because direct materials are typically variable costs that directly change with the level of production, further distinguishing them from fixed costs.