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Chapter 20: Problem 17

The salaries paid to people who are in the middle of three-year guaranteed contracts are __________ \- (LO1) a) a fixed cost b) a variable cost c) a fixed cost or a variable cost d) neither a fixed cost nor a variable cost

Short Answer

Expert verified
a) a fixed cost

Step by step solution

01

Understand Fixed and Variable Costs

Fixed costs are expenses that do not change, regardless of the level of production or unit sales. Variable costs, on the other hand, change with the level of production or sales.
02

Analyze Three-Year Guaranteed Contracts

A three-year guaranteed contract means that the salary of the individuals involved is predetermined for three years. This salary will be paid regardless of the number of units produced or the level of revenue generated during that time.
03

Compare Contracts with Fixed and Variable Costs

As the salary in three-year guaranteed contracts remains constant and isn't dependent on the level of production or sales, it's more in line with the concept of fixed costs.
04

Determine the Correct Answer

Based on the analysis, the salaries of people who are in the middle of three-year guaranteed contracts are a fixed cost. Therefore, the correct answer is: a) a fixed cost

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Most popular questions from this chapter

As output increases, eventually __________ (LO7) a) economies of scale become larger than diseconomies of scale b) diseconomies of scale become larger than economies of scale c) economies of scale and diseconomies of scale both increase d) economies of scale and diseconomies of scale both decrease

Total cost is the sum of __________ (LO1) a) marginal cost and fixed cost b) marginal cost and variable cost c) variable cost and fixed cost

Which of these statements is false? (LO8) a) When the firm shuts down, output is zero. b) When variable cost is zero, output is zero. c) When output is zero, total cost is zero. d) None of these is false.

The marginal cost curve intersects the average variable cost curve at the __________ (LO5) a) shut-down point b) break-even point c) maximum profit point

Which of the following is most likely to be a variable cost? (LO1) a) Real estate taxes b) Rental payments of IBM equipment c) Interest on bonded indebtedness d) Fuel and power payments
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