Question

Kat runs a cake shop. Her monthly expenses are listed below. For each cost, indicate whether the cost is a fixed cost or a variable cost of producing cakes in the short run.a. Ingredients (flour, butter, sugar). b. Bakers (cooks). c. Rent. d. Payments for equipment (ovens). e. Interest payments for borrowed capital.

Answer 1

Answer and explanation:

Fixed Costs are business expenses that do not change as the level of production goes up or down. They are one of two types of business expenses, the other being variable costs. Variable costs do change as the volume of production increases or decreases. Thus:

A) Ingredients (flour, butter, sugar) - Variable cost

B) Bakers (cooks) - Variable cost

C) Rent - Fixed cost

D) Payments for equipment (ovens) - Fixed cost

E) Interest payments for borrowed capital - Fixed cost