Question

Max​ Shreck, an​ accountant, quit his​ $80,000-a-year job and bought an existing tattoo parlor from its previous​ owner, Sylvia Sidney. The lease has five years remaining and requires a monthly payment of​ $4,000. The lease ________.A) is a fixed cost of operating the tattoo parlor.

B) is a variable cost of operating the tattoo parlor.

Answer 1

A) is a fixed cost of operating the tattoo parlor.

Step-by-step explanation:

Fixed costs refer to those costs which do not change irrespective of the level of output. An example of fixed cost would be rent of the factory building which will be paid irrespective of the level of production.

In the given case, the person in question quit his job for operating an existing tattoo parlor against monthly payment of $4000. Since the amount of payment has been fixed and such payment is not dependent upon any other variable, such cost shall be classified as a fixed cost of operating the tattoo parlor.