Jodi recently went into business producing widgets.Which of the following would be a fixed cost for her firm? 1.labour costs of $1000 per month
2.raw material costs of $5000 per month
3.a one-year lease on a building of $12 000
A)1 only
B)2 only
C)3 only
D)1 and 2
E)2 and 3

Question

Quizplus · Accepted Answer

A fixed cost is a cost that does not vary with the level of production or sales. Option 1 (labour costs) is a variable cost as the amount will depend on the level of production. Option 2 (raw material costs) is also a variable cost as the amount will depend on how much widget Jodi produces. Option 3 (building lease) is a fixed cost as the amount will not change regardless of the level of production. Hence, the answer is C) 3 only.

Jodi Recently Went into Business Producing Widgets