26. What are examples of fixed costs? Choose 2 answers
Answer: A,D
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 goods or services produced by a business. In this case, both the monthly internet cost and the license fee remain constant regardless of production levels.
A) The monthly internet cost in a business that produces women's apparel
This option is correct as the monthly internet cost is a fixed expense that the business incurs regardless of its sales volume or production levels. Such costs are essential for operations and remain stable over time.
B) The cost of the parts used in individual devices made by a computer manufacturer
This option is incorrect because the cost of parts is a variable cost. It fluctuates depending on the number of devices produced; as production increases, the cost of parts increases accordingly.
C) The cost of flour used in a bread baking facility
This option is also incorrect. The cost of flour is a variable cost as it changes based on the quantity of bread produced. More bread requires more flour, leading to varying expenses.
D) A $1,000 license fee charged by the state government to operate a shop
This option is correct as a license fee is a fixed cost that does not change with the level of business activity. It is a regulatory expense that must be paid regardless of sales or production levels.
E) The commissions paid by a company to its sales force
This option is incorrect because commissions are variable costs that depend on the sales volume. Higher sales lead to higher commission expenses, thus making them inconsistent with fixed costs.
Conclusion
The correct answers, A and D, exemplify fixed costs as they remain constant regardless of production or sales fluctuations. In contrast, options B, C, and E represent variable costs that vary with the level of business activity, highlighting the distinction between fixed and variable expenses.