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Multiple Choice
Fixed costs are best defined as:
A
Costs that vary directly with the level of production or sales volume.
B
Costs that remain constant in total regardless of changes in the level of production or sales volume.
C
Costs that are incurred only when production reaches a certain level.
D
Costs that can be traced directly to a specific product or service.
Verified step by step guidance
1
Understand the concept of fixed costs: Fixed costs are expenses that do not change in total regardless of the level of production or sales volume. Examples include rent, salaries, and insurance.
Differentiate fixed costs from variable costs: Variable costs change directly with the level of production or sales volume, such as raw materials or direct labor costs.
Analyze the options provided in the problem: Evaluate each statement to determine which one aligns with the definition of fixed costs.
Eliminate incorrect options: For example, 'Costs that vary directly with the level of production or sales volume' describes variable costs, not fixed costs.
Select the correct answer: The statement 'Costs that remain constant in total regardless of changes in the level of production or sales volume' accurately defines fixed costs.