Which of the following is an example of a fixed cost that is also a sunk cost for a bakery as of January 15?
A)The electric bill for the coming calendar year.
B)An accountant's fees for tax preparation in April.
C)The cost of a one-year lease on a building, signed January 1.
D)The salary of the baker for the month of February.

Question

Quizplus · Accepted Answer

A fixed cost is a cost that does not change with an increase or decrease in production or sales. A sunk cost is a cost that has already been incurred and cannot be recovered. The cost of a one-year lease on a building is an example of a fixed cost that is also a sunk cost for a bakery as of January 15 because the lease has already been signed and the cost cannot be recovered, regardless of the bakery's future production or sales. The other options involve future costs that may change with production or sales or can be avoided with different choices (such as not hiring an accountant). A fixed cost is a cost that does not change with the level of production, such as rent or lease payments. A sunk cost is a cost that has already been incurred and cannot be recovered, regardless of future decisions. A one-year lease on a building that was signed on January 1 is both a fixed cost and a sunk cost, as the bakery has committed to paying for the full year regardless of whether they continue to use the space or not. The other options are not sunk costs because they have not yet been incurred.

Which of the Following Is an Example of a Fixed