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What are examples of fixed costs? Choose 2 answers

Rationale

The monthly internet cost in a business that produces women's apparel and a $1,000 license fee charged by the state government to operate a shop are examples of fixed costs.

Fixed costs are expenses that do not change with the level of production or sales. They remain constant over time, regardless of how much a business produces or sells, making them predictable and essential for budgeting.

A (The monthly internet cost in a business that produces women's apparel) CORRECT

This cost remains constant regardless of the production volume of apparel. The internet is a necessary service for business operations, making it a fixed expense that the business must pay every month, irrespective of sales fluctuations.

B (The cost of the parts used in individual devices made by a computer manufacturer) YOUR ANSWER

This cost is variable, as it directly correlates with the number of devices produced. As production increases or decreases, the cost of parts will rise or fall accordingly, making it not a fixed cost.

C (The cost of flour used in a bread baking facility) YOUR ANSWER

Similar to the parts cost, the cost of flour is a variable cost. It fluctuates based on how much bread is produced; more production requires more flour, thus not qualifying as a fixed cost.

D (A $1,000 license fee charged by the state government to operate a shop) CORRECT

This fee is a fixed cost because it is a one-time expense that does not change with the level of sales or production. Once paid, it remains constant and must be accounted for in the budget of the business.

E (The commissions paid by a company to its sales force) YOUR ANSWER

Commissions are variable costs because they depend on the sales performance of the sales force. Higher sales lead to higher commission payouts, and thus they are not considered fixed costs.

Conclusion

Fixed costs are crucial for understanding a business's financial commitments, as they remain stable despite changes in production levels. In this case, the monthly internet cost and the state license fee exemplify fixed costs, while the other options represent variable costs that fluctuate with business activity. Understanding these distinctions helps businesses manage their budgets effectively and prepare for varying levels of production and sales.

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