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In a case study, a company incurs $10,000 in rent for its factory. How should th

Practice Questions

Q1
In a case study, a company incurs $10,000 in rent for its factory. How should this cost be classified?
  1. Variable Cost
  2. Direct Cost
  3. Fixed Cost
  4. Mixed Cost

Questions & Step-by-Step Solutions

In a case study, a company incurs $10,000 in rent for its factory. How should this cost be classified?
  • Step 1: Understand what rent is. Rent is the amount of money paid to use a property, in this case, a factory.
  • Step 2: Identify the type of cost. Costs can be fixed or variable. Fixed costs do not change with production levels, while variable costs do.
  • Step 3: Determine if the rent changes. Since the rent is $10,000 regardless of how much the factory produces, it does not change.
  • Step 4: Classify the cost. Since the rent remains the same no matter how much is produced, it is classified as a fixed cost.
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