Question

Fixed costs in plant operations include:

• A. Raw materials
• B. Labor wages
• C. Depreciation and plant maintenance
• D. Utility costs

Hint:

Fixed costs remain unchanged with production levels. Think of depreciation, rent, or salaries of permanent staff — they are paid whether or not production happens.

Answer 1

The Correct Option is C

Fixed costs are those expenses that remain constant regardless of the level of production or operation in a plant. These costs do not vary with the output level.
Depreciation and plant maintenance are categorized as fixed costs because:
- Depreciation is a non-cash expense that allocates the cost of an asset over its useful life, and it occurs irrespective of production levels.
- Plant maintenance is generally scheduled and planned to keep equipment functional, and it occurs regularly regardless of whether the plant is operating at full capacity or not.
Other options explained:
- Raw materials are variable costs as they change depending on the quantity of products manufactured.
- Labor wages can be fixed or variable, but in plant operations, most operational labor is treated as a variable cost.
- Utility costs (like electricity and water) typically vary with production and are considered variable costs.
Hence, only Depreciation and plant maintenance clearly fall under fixed costs.