Question

Hico company pays its production managers a salary of $5,000 per month. Salary person are paid strictly commission, at $2 for each product sold. The production manager's salaries are an example of:

a. Variable cost
b. a fixed cost
c. a mixed cost
d. none of the above

Answer 1

The $5,000 monthly salary for production managers at Hico company is a fixed cost, as it does not vary with the production levels.

Step-by-step explanation:

The production manager's salaries at Hico company, which are $5,000 per month irrespective of the products sold, represent a type of cost to the business. Given that these salaries do not vary with the number of products sold, they are categorized as a fixed cost. This means they are consistent each month, regardless of the company's production levels. In contrast, a variable cost changes with production volume, such as the commissions paid to sales personnel at a rate of $2 for each product sold. An example of a mixed cost would be one that comprises both fixed and variable elements, however, in this scenario, the production manager's salary is solely a fixed cost.