Which of the following best describes fixed costs?

Which of the following best describes fixed costs?

• A. Costs that increase with the number of goods sold
• B. Costs that remain constant regardless of production levels
• C. Variable costs associated with supplies
• D. Operational costs linked solely to marketing efforts

Answer: (B)

Fixed costs are expenses that do not change with the level of goods or services produced by a business. This means that whether a company is producing a high volume of products or none at all, these costs remain constant. Common examples of fixed costs include rent, salaries of permanent staff, and insurance. Choosing an option that states fixed costs remain constant regardless of production levels accurately captures their defining characteristic. This understanding is crucial for businesses as it helps in planning and budgeting, allowing them to predict their overall financial obligations without regard to fluctuating production levels. On the other hand, the other responses describe costs that vary based on production levels or specific operational categories, which do not align with the concept of fixed costs.

Fixed costs are expenses that do not change with the level of goods or services produced by a business. This means that whether a company is producing a high volume of products or none at all, these costs remain constant. Common examples of fixed costs include rent, salaries of permanent staff, and insurance.

Choosing an option that states fixed costs remain constant regardless of production levels accurately captures their defining characteristic. This understanding is crucial for businesses as it helps in planning and budgeting, allowing them to predict their overall financial obligations without regard to fluctuating production levels.

On the other hand, the other responses describe costs that vary based on production levels or specific operational categories, which do not align with the concept of fixed costs.