Which term describes the non-varying cost that a business must pay regardless of output?

Which term describes the non-varying cost that a business must pay regardless of output?

• A. Fixed Costs
• B. Overheads
• C. Variable Costs
• D. Semi-variable Costs

Answer: (A)

Fixed costs are costs that do not change with the level of production. They must be paid even if nothing is produced, so they stay the same whether you make zero units or thousands. Examples include rent, insurance, and salaried staff who aren’t paid per unit produced. Because the question describes a cost that remains constant regardless of output, fixed costs is the best term. Variable costs, in contrast, rise and fall with output (like raw materials or direct labor tied to production). Semi-variable costs have a fixed component plus a variable component, so they don’t stay completely constant as activity changes. Overheads are indirect costs and can be fixed or variable, but the description fits fixed costs most precisely.

Fixed costs are costs that do not change with the level of production. They must be paid even if nothing is produced, so they stay the same whether you make zero units or thousands. Examples include rent, insurance, and salaried staff who aren’t paid per unit produced. Because the question describes a cost that remains constant regardless of output, fixed costs is the best term.

Variable costs, in contrast, rise and fall with output (like raw materials or direct labor tied to production). Semi-variable costs have a fixed component plus a variable component, so they don’t stay completely constant as activity changes. Overheads are indirect costs and can be fixed or variable, but the description fits fixed costs most precisely.