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    natashaqueen's Avatar
    natashaqueen Posts: 1, Reputation: 1
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    #1

    Oct 29, 2008, 04:30 PM
    Fixed costs
    Which of the following is not a fixed cost? Direct materials, depreciation, lease charge, or property taxes?
    Khianu's Avatar
    Khianu Posts: 6, Reputation: 3
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    #2

    Oct 29, 2008, 05:17 PM
    A fixed cost is defined to be "a cost which does not vary according to output".

    2. Depreciation is the value lost on a fixed asset, i.e. the difference between the price you bought it for and sell it for. This will not change depending on how much the machine or whatever it is produces, it will depreciate at the same rate. So this is fixed.

    3 and 4. Lease charge and property taxes will only increase if you buy more property but in the short term it is probably assumed that you simply have a single building with a certain capacity as far as output is concerned and that you can't produce over that. If you produce less than that then you still have to pay the costs for the whole building. So this is fixed.

    1. As far as direct materials is concerned, since the more you produce (output), the more materials you need, direct materials is therefore a variable cost and not fixed.

    Hope that's clear enough.

    Ben
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