Question

Which of the following is most likely a fixed cost?

a. Cost to lease a piece of production equipment.
b. Cost of fuel to heat a factory.
c. An employee's compensation that is based on what the employee produces.
d. A machine's maintenance costs when maintenance is performed every 400 hours the machine is operated.

Answer 1

The a. cost to lease a piece of production equipment is a fixed cost because it remains constant regardless of the level of production, fitting the definition of a fixed expense.

Step-by-step explanation:

Among the options provided, the one that is most likely a fixed cost is a. Cost to lease a piece of production equipment.

Fixed costs are those that do not change regardless of the level of production, and leasing equipment typically involves a regular, consistent payment that doesn't vary with the number of goods produced or the amount of services provided by the business.

For example, once you sign the lease, the rent is the same regardless of how much you produce, at least until the lease expires.

This characteristic makes leasing costs a fixed expense, unlike variable costs such as fuel consumption for heating or maintenance costs that change with production levels.