Understanding Fixed and Variable Costs

What are total costs (TC)?

• The sum of fixed costs

• The sum of variable costs

• The sum of fixed and variable costs

• The sum of all costs excluding fixed costs

Which of the following is a characteristic of fixed costs?

• They vary directly with the output.

• They increase as output increases.

• They do not change as the level of output changes.

• They are only incurred at high levels of output.

Which of the following is an example of a fixed cost?

• Raw materials

• Direct labor

• Rent

• Shipping costs

What is the relationship between fixed costs and output quantity?

• Fixed costs increase with output quantity

• Fixed costs decrease with output quantity

• Fixed costs remain constant regardless of output quantity

• Fixed costs vary unpredictably with output quantity

What happens to fixed costs if the output is 100,000 units?

• They become zero

• They increase

• They remain the same

• They decrease

Which cost does not change irrespective of the output level?

• Variable cost

• Fixed cost

• Marginal cost

• Total cost

What happens to variable costs as output increases?

• They remain constant.

• They decrease.

• They rise proportionally with output.

• They fluctuate randomly.

Which of the following is considered an overhead cost?

• Direct labor

• Office supplies

• Production equipment

• Finished goods

What is a characteristic of direct costs?

• They cannot be allocated easily to the production of a particular product

• They vary directly with the production of a particular product

• They are fixed and do not change

• They are related to marketing and sales

Leo and Mira are discussing business expenses. Which of the following is a characteristic of indirect costs?

• They vary directly with the production of a particular product

• They are related to the business as a whole

• They are fixed and do not change

• They are related to marketing and sales