Which of the following is categorised as fixed cost?

Which of the following is categorised as fixed cost?
A . Additional pallet hires due to higher demand in year-end season
B . Land rental paid in advance
C . Governments taxes
D . Raw materials for next year production

View Answer

Answer: B

Explanation:

Anorganisation’s expense can be categorised into three groups:

Fixed Costs C costs that do not change with output.

Variable Costs C costs that vary in direct proportion to output.

Semi-variable costs C costs that are a combination of the above, with both a fixed and

variable element.

Among the four options:

"Land rental paid in advance": This is fixed cost. The rental won’t increase when the production increases.

"Additional pallet hires due to higher demand in year-end season": This can be identified as semi-variable cost (or step cost).

"Governments taxes": The taxes are often levied by a percentage of income or revenue. Therefore, it is variable

"Raw materials for next year production": This is obviously variable cost.

Reference:

CIPS study guide page 79-84

Study tips: Fixed variable and semi-variable costs – AAT Comment