Question

A television assembly plant has a variable production output ranging from 200 sets to 850 sets a day. The building for both manufacturing and warehousing has an area of 80,000 square feet and is leased from a real estate firm at an annual rate of $7.95 per square foot. It employs 250 people and their wage cost is, in large part, a function of the number of televisions produced. Most of the components that go into the assembly are also produced in the plant with in-house equipment that is operated based on production requirements. The most likely example of fixed cost in this plant is ______________.

Answer 1

Annual rental rate

$636,000

Step-by-step explanation:

Fixed cost is cost that does not vary with output. An example of fixed cost is rent

The annual rental rate is a fixed cost because it does not vary with output.

Variable cost is cost that varies with output. If output is zero, no variable cost would be incurred. An example of variable cost is wages

The wages paid to labour is a variable cost