6. Which of the following is most likely to be a fixed cost?
A. Shipping charges
B. Property insurance premiums
C. Wages for unskilled labor
D. Expenditures for raw materials

Question

6.    Which of the following is most likely to be a fixed cost?
A.    Shipping charges
B.    Property insurance premiums
C.    Wages for unskilled labor
D.    Expenditures for raw materials

BlackTom AI · Accepted Answer

Fixed costs remain constant over a relevant range of activity and do not change in direct proportion to the level of production or sales. Common examples are rent, depreciation, salaried management pay, and property insurance premiums.

1) Relevant concepts:
- Fixed cost: cost that does not vary with output in the short run.
- Variable cost: cost that increases or decreases with production volume.
- Semi-variable/mixed costs: contain both fixed and variable components (not directly relevant here).

2) Step-by-step reasoning:
Step 1 — Evaluate each option against the definition of fixed cost.
Step 2 — Determine whether the cost typically changes when production or sales change.

3) Assessment of each option:
A. Shipping charges — Generally variable: shipping increases with the quantity of goods sold or shipped (more units = more shipping costs). Therefore not a fixed cost.
B. Property insurance premiums — Typically fixed: insurers charge a set premium for coverage over a policy period (monthly/annual) regardless of how many units the business produces or sells during that period. This payment generally does not vary with production volume, so it fits the definition of a fixed cost.
C. Wages for unskilled labor — Usually variable: these wages often depend on hours worked or piece-rate output; hiring more unskilled labor or paying overtime as production increases makes them variable. (If wages were salaried and not tied to hours, they could be fixed, but "wages for unskilled labor" usually implies hourly/variable pay.)
D. Expenditures for raw materials — Clearly variable: raw material costs rise and fall directly with production volume.

4) Why B is correct:
Property insurance premiums are paid on a time basis regardless of production level; therefore they do not change with units produced and are classified as fixed costs.

5) Why other options are incorrect:
A, C, and D change with production or sales levels (shipping, unskilled wages, raw materials), so they are variable rather than fixed.

Conclusion: The correct answer is B, which matches the provided answer.

6. Which of the following is most likely to be a fixed cost? A. Shipping charges B. Property insurance premiums C. Wages for unskilled labor D. Expenditures for raw materialsSingle choice

Similar Questions

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