Which of the following statements regarding fixed costs is TRUE?
A) Fixed costs rise by a constant amount for every added unit of volume.
B) While fixed costs are ordinarily constant with respect to volume, they can "step" upward if volume increases result in additional fixed costs.
C) Fixed costs are those costs associated with direct labor and materials.
D) Fixed costs equal variable costs at the break-even point.
E) Fixed cost is the difference between selling price and variable cost.

Question

Quizplus · Accepted Answer

Fixed costs are costs that do not vary with changes in production or sales volume. While they are typically constant, they can "step" upward if additional fixed costs are incurred due to increases in volume. For example, a company may need to invest in additional equipment or hire more employees to handle higher production levels, which would increase fixed costs. Option A is incorrect because this describes variable costs, which rise proportionally with volume. Option C is incorrect because fixed costs are not associated with direct labor and materials, but rather with overhead expenses. Option D is incorrect because fixed costs and variable costs are separate and do not equal each other at the break-even point. Option E is incorrect because this definition does not accurately describe fixed costs.

Which of the Following Statements Regarding Fixed Costs Is TRUE