Question

Bart's Inc. operates retail stores in various cities. Segmented income statements are prepared for each store and for each product line in each store. The property tax for the store is a(n) (1) fixed cost for the store, and a(n) (2) fixed cost for each product line sold in the store. (Enter only one word per blank.)

Answer 1

In Bart's Inc., property tax is a fixed cost for both the store and each product line, as these costs do not change with production levels. This concept is crucial for understanding how businesses manage profitability and make strategic decisions.

Step-by-step explanation:

In the context of segmented income statements for Bart's Inc., the property tax for the retail store is considered a fixed cost for the store itself, meaning it does not vary with the level of production or sales activity. This is because costs like property taxes, rent, and equipment, are static expenses required for operation, regardless of output.

On a segmented basis, however, the property tax would also be considered a fixed cost for each product line sold in the store. This alignment of costs is crucial when businesses make decisions about pricing, budgeting, and strategy. It is essential to understand this division of costs in managing profitability and assessing each store and product line's performance. For instance, in a barbershop scenario, the cost of the space and equipment represents fixed costs, while the payment for barbers represents variable costs, which fluctuate with the number of barbers hired.