Question

Labour is a variable input into the production process. In this sense, a change in the amount of labour used in production (the number of employee hours) lead to a proportionate change in labour costs. However, some other labour-related costs may also occur.

Define "quasi-fixed costs" and give three examples of them.

Answer 1

Quasi-fixed costs are costs that are fixed within a certain range of production level and can change if the production level exceeds a certain threshold. Three examples of quasi-fixed costs are depreciation of machinery, insurance premiums, and administrative salaries.

Step-by-step explanation:

Quasi-fixed costs are costs that are fixed within a certain range of output or production level. In other words, they do not change immediately with changes in the production level, but may change when the production level exceeds a certain threshold. Three examples of quasi-fixed costs are:

1. Depreciation of machinery: The cost of machinery used in production is considered a quasi-fixed cost because it remains constant within a certain range of production levels. However, if the production level increases significantly and new machinery is required, the cost of depreciation will increase.
2. Insurance premiums: Insurance premiums are another example of quasi-fixed costs. The premiums remain constant until the production level reaches a certain threshold, after which the insurance provider may require additional premiums to cover the increased risk.
3. Administrative salaries: Salaries of administrative personnel are also considered quasi-fixed costs. The salaries remain the same within a certain range of production levels, but may increase if additional administrative staff is required to manage higher production levels.

Quasi-fixed costs vary with changes in activity or scale, but not directly with production levels. Examples include salaries, employee benefits, and training costs.

“Quasi-fixed costs” are expenses that are not directly proportional to the level of production or sales, unlike variable costs, but they can vary over time. These costs are usually related to employees and their associated benefits that do not change in the short term as output changes, but can change when there are significant changes in the level of activity or scale of operations. Three examples of quasi-fixed costs include:

Salaries for staff who are on fixed contracts regardless of the company's level of production.

Employee benefits such as health insurance, which may be fixed per employee but vary in total with the number of employees.

Training costs, which remain constant over a period but can change if new staff are hired or existing staff require new training due to changes in the production process or product offering.