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A fixed cost is an amount that does not fluctuate no matter the cost of goods sold or number of services received. Fixed costs are agreed upon and do not change. It's almost like you agree on a number and sign a contact to keep the set number, therefore it does not change. An example of a fixed cost is paying rent. When someone signs a lease for an apartment usually you sign a contact for a set amount. This amount does not change unless the contract is up and you need to renew. This is a fixed rate because it doesn't change month to month. Another example of a fixed cost is salary. Salary is a set amount you get paid annually which does not change for a set amount of time. A variable cost is one that fluctuates and is dependent on sales and production. Once example of a variable cost is when you buy items at a grocery store versus someone one is buying only one item. The cost is variable because not all items cost the same and most items are different prices. Another example is commission, because commission is dependent on how much you sell and what you sell. It varies depending on how much and what you sell. A company can budget for variable costs, however it can be very hard because, the cost of goods will not always be the same. They can come up with an estimated budget, however it will never be exact. Over budgeting for the cost of goods can get them close to budgeting for variable costs. "Fixed and Variable Costs: When Accounting Is the Opposite of Cash Flow Reality," by Lee, from Journal of Corporate Accounting and Finance (2016).