Which of the following would be classified as a fixed cost for the proprietor who owns and operates the local Texaco station?
A) The federal excise tax paid on each gallon of Texaco gasoline sold.
B) The state income tax on the profit earned.
C) The rent paid on the 10 year lease for the property on which the station is located.
D) The Social Security tax the owner pays the federal government on the owner's income.

Question

Quizplus · Accepted Answer

The rent paid on the 10 year lease for the property on which the station is located is a fixed cost because it does not change with the amount of gasoline sold or the level of profits earned. The federal excise tax (A) is a variable cost because it is based on the amount of gasoline sold. The state income tax (B) and Social Security tax (D) are both based on the proprietor's income and therefore vary with profits earned.

Which of the Following Would Be Classified as a Fixed