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Which of the following is a fixed cost? A) A cost that is $28.00 per unit when production is 70,000, and $17.50 per unit when production is 112,000. B) A cost that is $28.00 per unit when production is 70,000, and $56.00 per unit when production is 112,000. C) A cost that is $28.00 per unit when production is 70,000, and $28.00 per unit when production is 112,000. D) A cost that is $56.00 per unit when production is 70,000, and $56.00 per unit when production is 112,000.

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Answer:

Option A is correct

Explanation:

A fixed cost is that which remains unchanged within a given range of activity. That is, unlike variable costs, these costs do not change with level of production or the number of customers or clients served.

To determine which of the option illustrates the feature of a fixed cost, we need to calculate the total fixed cost .

Total fixed cost = Fixed cost per unit × activity level.

For example, for option C = (28× 70,000), ( 28 ×  112,000)

                                          =      $1,960,000, $3,136,000

Calculating the fixed cost for each of the options, we have the table below.

                     70,000 units        112,000 units

Option                           $                         $

 A                          1,960,000          1,960,000

B                             1,960,000          6,272,000

C                              1,960,000           3,136,000

D                             3,920,000           6,272,000

Option A is the correct answer, because the cost remains the same across the  activity levels.

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