Question

Which of the following would be considered a committed fixed cost?

1) Rent for a factory building
2) Cost of raw materials
3) Wages for temporary employees
4) Advertising expenses

Answer 1

A committed fixed cost is a cost that remains constant regardless of the level of production. Rent for a factory building is an example of a committed fixed cost.

Step-by-step explanation:

A committed fixed cost is a cost that remains constant regardless of the level of production. It does not change in the short run. Rent for a factory building would be considered a committed fixed cost since it remains the same whether the factory produces a little or a lot. The cost of raw materials, wages for temporary employees, and advertising expenses are not considered committed fixed costs since they can vary with the level of production. Understanding these distinct cost categories enables businesses to strategize effectively, distinguishing between immovable, unchanging expenses and those subject to flux, influencing short-term decisions and long-term planning alike.