If economic activity slows down,total costs could easily decline in which of the following categories?
A)variable costs and committed fixed costs
B)variable costs and discretionary fixed costs
C)variable costs only
D)committed fixed costs only

Question

Quizplus · Accepted Answer

If economic activity slows down, total costs could easily decline in the variable costs and discretionary fixed costs categories. Variable costs are directly tied to the level of production and decrease when production is reduced. Discretionary fixed costs, such as advertising and training expenses, are not essential for the operation of a business and can be cut back during times of economic slowdown. Committed fixed costs, such as long-term leases and mortgage payments, cannot be easily reduced and may continue to incur even if economic activity slows down. Therefore, option B is the best choice.

If Economic Activity Slows Down,total Costs Could Easily Decline in Which