Which cost is an example of a fixed cost?

Which cost is an example of a fixed cost?

• A. Rent on the factory building
• B. Wages paid to hourly workers
• C. Direct materials
• D. Commissions on sales

Answer: (A)

Fixed costs stay constant in total as production levels change (at least within a relevant range). Rent on the factory building is a classic fixed cost because the lease payment is set and does not vary with how much you produce in a period. Wages for hourly workers change with the number of hours worked, so they’re variable. Direct materials rise directly with the amount produced, so they’re variable. Commissions on sales also vary with how much you sell, making them variable. So rent on the factory building is the best example of a fixed cost.

Fixed costs stay constant in total as production levels change (at least within a relevant range). Rent on the factory building is a classic fixed cost because the lease payment is set and does not vary with how much you produce in a period. Wages for hourly workers change with the number of hours worked, so they’re variable. Direct materials rise directly with the amount produced, so they’re variable. Commissions on sales also vary with how much you sell, making them variable. So rent on the factory building is the best example of a fixed cost.