Chapter 8: Problem 17

The salaries paid to people who are in the middle of three-year guaranteed contracts are _____. 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

The salaries paid to people who are in the middle of three-year guaranteed contracts can be classified as fixed costs, as they remain constant regardless of the level of production or sales. Therefore, the correct answer is option (a) a fixed cost.

Step by step solution

Definition of Fixed Cost

A fixed cost is a cost that does not change with the level of production or sales. It is also described as a cost that remains constant, regardless of the firm's activity level.

Definition of Variable Cost

A variable cost is a cost that changes along with the level of production or sales. It increases as the level of output increases and decreases as the level of output decreases.

Identifying Salaries as Fixed or Variable Cost

Now, let's consider the salaries paid to people who are in the middle of three-year guaranteed contracts. Since these contracts are guaranteed, it means the salaries paid to the employees remain the same regardless of the level of production or sales. As a result, it seems that these salaries have the characteristics of fixed costs.

Selecting the Correct Option

Based on our analysis, we can conclude that the salaries paid to people who are in the middle of three-year guaranteed contracts can be classified as fixed costs. Therefore, the correct answer is option (a) a fixed cost.

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