Which kind of these following costs belong to fixed costs? Select TWO that apply.

Which kind of these following costs belong to fixed costs? Select TWO that apply.
A . Energy consumption in manufacturing
B. The annual income tax charged by local authorities
C. The packaging and distribution costs
D. The depreciation of capital inputs
E. The costs of leasing or purchasing capital equipment

View Answer

Answer: D,E

Explanation:

Based on variability, the costs has been classified into three categories, they are fixed, variable and semi variable. Fixed costs, as its name suggests, is fixed in total i.e. irrespective of the number of output produced. Variable costs vary with the number of output produced. Semi-variable is the type of costs, which have the characteristics of both fixed costs and variable costs (Source: Key Differences).

Among above costs, leasing and depreciation are relatively static and do not change if volume of business activities increase or reduce.

Packaging, utilities and annual business rate (tax) are variable costs.

Reference: CIPS study guide page 26

LO 1, AC 1.2