Question

Cy recently went into the business of producing and selling cardboard boxes. For this business, which of the following is most likely to be a fixed cost?

a) Labor costs
b) Adhesive costs
c) Paper costs
d) Fire insurance

Answer 1

The fixed cost for Cy's cardboard box production business is likely to be the fire insurance, as it remains constant regardless of production levels, unlike variable costs such as labor, adhesive, and paper costs which can fluctuate.

Step-by-step explanation:

The correct answer option is D::

In the context of Cy's cardboard box production business, the cost that is most likely to be a fixed cost is d) Fire insurance. Fixed costs are expenditures that do not change in relation to the level of production. Therefore, while labor, adhesive, and paper costs may vary depending on the number of cardboard boxes produced, the cost of fire insurance would typically remain constant irrespective of production levels.

Fixed costs often include expenses such as the rent on a factory or retail space, the cost of machinery or equipment, research and development costs, or advertising expenses. In contrast to variable costs, which fluctuate with production volume, fixed costs are incurred even if the production is zero. For instance, although Cy may not produce any boxes in a given period, the fire insurance premium would still need to be paid to protect the business assets.