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What are examples of fixed costs? Choose 2 answers.

Rationale

A $1000 license fee charged by the state government to operate a shop and the monthly internet cost in a business that produces women’s apparel are examples of fixed costs.

Fixed costs are expenses that do not change with the level of output or sales, remaining constant regardless of production volume. The license fee and monthly internet cost are both incurred regularly, irrespective of how much business is conducted.

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

This choice represents variable costs, as the cost of parts fluctuates based on the number of devices produced. More production leads to higher costs for parts, making it not a fixed expense.

B (A $1000 license fee charged by the state government to operate a shop) CORRECT

This choice is a fixed cost because the license fee remains constant regardless of the shop's sales or production levels. It is a necessary expense that does not vary with business activity.

C (The monthly internet cost in a business that produces women’s apparel) CORRECT

This option is also a fixed cost since the monthly internet expense does not change with the volume of apparel produced. It represents a consistent operational expense essential for the business’s functioning.

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

Commissions are variable costs because they are directly tied to sales performance. As sales increase, so do the commissions, making this option inconsistent with the definition of fixed costs.

E (the cost of flour used in a bread baking fcility) YOUR ANSWER

The cost of flour is a variable cost, as it fluctuates based on the amount of bread produced. More production leads to higher flour costs, distinguishing it from fixed costs.

Conclusion

Fixed costs are essential for budgeting and financial planning, as they remain unchanged regardless of business activity. The $1000 license fee and the monthly internet cost are prime examples of fixed expenses that a business must manage, while other costs like parts, commissions, and ingredients vary with production levels. Understanding these distinctions helps businesses maintain financial stability and predictability.

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