What is the meaning of Capacity Cost?

Capacity Cost is known as the fixed expenditure faced by a company to expand its business reach and its potential to spread its operations. This does not change as the levels of production change and can only be slashed when the business is shut or is outsourced. These costs are usually fixed in nature and goes to increase the activities or premises of the operations. It comprises insurance, rental payments, lease payments, property tax, inventory costs, depreciation of machinery etc. These are the expenses which happen to keep the business going irrespective of income or profits.