Fixed cost is a cost:

Question

Fixed cost is a cost:

1. A. Which changes in total in proportion to changes in output
2. B. Which is partly fixed and partly variable in relation to output
3. C. Which do not change in total during a given period despite changes in output (Correct answer)
4. D. Which remains same for each unit of output

Correct Answer

Option C — Which do not change in total during a given period despite changes in output

Detailed Solution & Explanation

The correct answer is Which do not change in total during a given period despite changes in output.

Key Points

• Fixed cost is a cost that remains constant in total regardless of changes in output during a given period.
• Examples include rent, salaries, and depreciation.
• It does not change with production volume.

Additional Information

• Fixed costs stay constant in total but fall per unit as output rises; variable costs are constant per unit but rise in total. That inversion is the point most often tested.
• Examples: rent, insurance, salaries and straight-line depreciation are fixed; raw materials, piece-rate wages and power are variable.
• Semi-variable (mixed) costs have both elements — a telephone bill with a fixed rental and a usage charge is the standard illustration.
• Fixed costs are constant only within a relevant range; a large jump in output eventually forces a step up, giving a stepped fixed cost.