Which statement about fixed costs is true?

Which statement about fixed costs is true?

• A. They vary with volume
• B. They remain constant in total over a given period
• C. They are only variable costs
• D. They are always zero for closed restaurants

Answer: (B)

Fixed costs are costs that do not change with the level of activity in the short term. Over a defined period, the total amount of fixed costs stays the same regardless of how much the operation produces or sells. What changes with volume is the per-unit allocation of those costs, so the fixed cost per dish or per guest decreases as volume rises and increases as volume falls. This is why fixed costs are not tied to output, unlike variable costs which do vary with activity. The statement about fixed costs being zero when the restaurant is closed isn’t true because many fixed costs, like rent, insurance, and some salaries, still incur even if the operation isn’t serving customers.

Fixed costs are costs that do not change with the level of activity in the short term. Over a defined period, the total amount of fixed costs stays the same regardless of how much the operation produces or sells. What changes with volume is the per-unit allocation of those costs, so the fixed cost per dish or per guest decreases as volume rises and increases as volume falls. This is why fixed costs are not tied to output, unlike variable costs which do vary with activity. The statement about fixed costs being zero when the restaurant is closed isn’t true because many fixed costs, like rent, insurance, and some salaries, still incur even if the operation isn’t serving customers.