Fixed Costs in Accounting

The video tutorial explains fixed costs, highlighting their two main characteristics: total cost remains constant regardless of activity level, and cost per unit varies inversely with activity changes. An example of a wedding venue is used to illustrate these concepts. Fixed costs are further classified into committed and discretionary types, with committed costs being less flexible and discretionary costs more adjustable in the short term.

What happens to the total cost when the level of activity changes?

• It decreases.

• It fluctuates randomly.

• It increases.

• It remains constant.

In the wedding venue example, what happens to the cost per unit as more people attend?

• It doubles.

• It remains the same.

• It decreases.

• It increases.

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

• Employee bonuses

• Mortgage payment

• Office supplies

• Monthly subscription service

What characterizes discretionary fixed costs?

• They are short-term and easily adjustable.

• They are always increasing.

• They are long-term and hard to change.

• They are unpredictable.

Which type of fixed cost can be adjusted based on annual management decisions?

• Committed fixed costs

• Variable costs

• Sunk costs

• Discretionary fixed costs