capacity cost

A fixed expense for a company that will provide for or increase business operations. The costs do not usually change with production levels. In order for a business to function it must incur these expenses regardless of how much or how little business is actually being done. The costs can be reduced or avoided only if the business locations are closed or due to outsourcing of work. Examples of capacity costs may include lease payments, machine/equipment depreciation, insurance, utilities, and insurance costs.