Question

Everything Looks Like a Nail, Inc is a manufacturing company that produces hammers. The company faces a number of fixed and variable costs in the short run. Determine which of the costs below are examples of fixed costs or examples of variable costs by placing them in the correct category. Assume the company cannot easily adjust the amount of capital it uses.Fixed Costs Variable Costsa. interest rate on current debtb. regulatory compliance costsc. annual salaries of top managementd. cost of metal used in manufacturinge. cost of wood used in manufacturingf. postage and packaging costsg. lease on buildingh. industrial equipment costs

Answer 1

Fixed costs do not depend on the level of output. They are therefore paid regardless of production.

Variable costs are only incurred as production goes on.

Fixed cost

a. Interest rate on current debt

b. Regulatory compliance costs

c. Annual salaries of top management

g. Lease on building

h. Industrial equipment costs

Variable Costs

d. Cost of metal used in manufacturing

e. Cost of wood used in manufacturing

f. Postage and packaging costs