We typically think of labor as a variable cost, even in the very short run. However, some labor costs may be fixed. Which of the following items represents an example of a fixed labor cost?
A) An hourly employee
B) A temporary worker who is paid by the hour
C) A salaried manager who has a three-year employment contract
D) none of the above

Question

Quizplus · Accepted Answer

A salaried manager with a three-year employment contract represents a fixed labor cost because the salary paid to the manager is predetermined and remains the same regardless of the level of output or production. In contrast, an hourly or temporary employee's wage varies with the number of hours they work, making it a variable cost.

We Typically Think of Labor as a Variable Cost, Even