Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Fixed costs vary directly with production levels.
B
Fixed costs remain constant regardless of production levels.
C
Fixed costs are always lower than variable costs.
D
Fixed costs can be eliminated without affecting total costs.
Understanding the Answer
Let's break down why this is correct
Answer
Fixed costs are expenses that do not change regardless of how much a company produces or sells. This means that even if a business makes no sales at all, it still has to pay these costs, like rent or salaries for employees. Because fixed costs stay the same, they can affect how much profit a company makes; if sales are low, these costs can take up a larger share of the total expenses. For example, if a bakery has fixed costs of $1,000 for rent, and it sells $2,000 worth of goods, the fixed costs are only 50% of its total costs. However, if sales drop to $1,000, those fixed costs now represent 100% of its total costs, showing how important it is for a company to cover its fixed costs with enough sales to remain profitable.
Detailed Explanation
Fixed costs do not change when a company makes more or less of a product. Other options are incorrect because This answer suggests that fixed costs change with production, which is not true; This option claims fixed costs are always lower than variable costs, but that's not always the case.
Key Concepts
cost structure
Topic
Understanding Fixed Costs and Decisions
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.