Question 25

Fixed costs include 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.

Fixed costs are expenses that do not change with the level of production or sales. Examples of fixed costs include certain fees and monthly bills that remain constant regardless of business activity, such as licensing fees and internet costs.

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

This option represents variable costs rather than fixed costs. The cost of parts fluctuates with the level of production; as more devices are manufactured, the total cost of parts will increase, making it a variable cost.

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

This is a clear example of a fixed cost. The $1000 license fee remains constant regardless of the number of sales or production levels, representing a cost that the business must pay irrespective of its operational activity.

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

This option is also a fixed cost. The monthly internet cost does not vary with the level of business activity; it is a recurring expense that the business incurs regardless of its sales volume.

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

Commissions are typically considered variable costs, as they fluctuate based on sales performance. As sales increase, commission expenses will also rise, making them dependent on the level of sales activity.

E) The cost of flour used in a bread baking facility

The cost of flour is classified as a variable cost, as it varies with the quantity of bread produced. The more bread baked, the more flour is required, reflecting a direct correlation with production levels.

Conclusion

In summary, options B and C accurately represent fixed costs, as they incur regardless of the business's level of production or sales activity. All other options either illustrate variable costs or are based on costs that fluctuate with production levels, thus failing to meet the criteria for fixed costs.