Question

Fixed cost includes

• A. Cost of raw materials
• B. Cost of labours
• C. Cost of power
• D. Cost of factory

Hint:

Fixed costs remain constant — like factory rent or insurance — while variable costs change with production, like materials and labor.

Answer 1

The Correct Option is D

Step 1: Understanding fixed cost.
Fixed costs are expenses that do not change with the level of production or sales.
They remain constant over a certain period, irrespective of output levels.
Examples include rent, insurance, salaries of permanent staff, and depreciation of buildings.
Step 2: Distinguishing between fixed and variable cost.
- Fixed cost: Remains constant — e.g., factory rent or depreciation.
- Variable cost: Changes with production — e.g., raw materials, wages, power consumption.
Step 3: Factory cost explanation.
The cost of factory facilities (such as rent, insurance, and maintenance) remains unchanged within a production range.
Hence, it is classified under fixed costs because it does not fluctuate with production volume.
Step 4: Analysis of options.
- (1) Cost of raw materials: Variable, changes with output.
- (2) Cost of labours: Partly variable depending on production.
- (3) Cost of power: Varies with machinery use.
- (4) Cost of factory: Correct — a fixed expense that remains stable regardless of production levels.
Step 5: Conclusion.
Hence, the cost of factory is included under fixed cost.