Fixed costs are expenses that ________.

Question

BlackTom AI · Accepted Answer

Fixed costs are expenses that remain constant in total regardless of the level of activity (within the relevant range), so "remain constant as activity changes" is the correct description.

1) Relevant knowledge points and concepts
- Fixed costs: total dollar amount does not change with short-term changes in production or sales volume (examples: rent, straight-line depreciation, salaried management).
- Variable costs: change in total in direct proportion to activity (examples: direct materials, direct labor by hour).
- Mixed (semi-variable) costs: contain both fixed and variable components (example: utility bills with a base charge + usage charge).
- Relevant range: the activity interval over which assumptions about fixedness hold; beyond this, fixed costs can change (e.g., need a larger facility).

2) Step-by-step reasoning
- By definition, if a cost is fixed, changing the number of units produced or hours worked does not change the total fixed cost in the short run.
- Therefore, when activity increases or decreases, the total fixed cost remains the same while fixed cost per unit changes inversely with output.

3) Numerical illustration (intermediate steps)
- Suppose monthly rent = $1,000 (fixed).
- If production = 100 units, fixed cost per unit = $1,000 / 100 = $10/unit.
- If production = 200 units, fixed cost per unit = $1,000 / 200 = $5/unit.
- Total fixed cost stays $1,000 in both cases; only per-unit amount changes.

4) Why the correct answer is correct
- The hallmark of fixed costs is total constancy across activity levels in the short run; that matches "remain constant as activity changes." This is the fundamental accounting and cost-behavior definition.

5) Why other plausible choices would be incorrect
- "Change in total as activity changes" describes variable—not fixed—costs.
- "Remain constant per unit" is false for fixed costs; per-unit fixed cost varies inversely with activity.
- "Always sunk costs" is incorrect: some fixed costs are avoidable in the long run and not necessarily sunk.
- "Are mixed costs" is incorrect because mixed costs have both fixed and variable parts.

6) Conclusion
The correct answer — remain constant as activity changes — is consistent with the definition and behavior of fixed costs; this matches the provided answer.

Fixed costs are expenses that ________.Single choice

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