Question

Classify the following into fixed cost and variable cost:
(i) Rent of a Godown
(ii) Minimum telephone bill
(iii) Interest on capital invested by an entrepreneur
(iv) Salary to permanent staff
(v) Cost of raw-material, payment of transportation of goods.
(vi) Daily wages of sweepers
(vii) Telephone charges beyond the minimum.

Answer 1

Answer:

(1)fixed costs - i , iii , iv , vi. .

(2)variable cost - ii , v , vii ..

Answer 2

• Rent of a Godown is a fixed cost because even if the production is stopped for a while one cannot stop the rent.
• Minimum telephone bill is also a fixed cost because the telephone line is an important aspect of the business.
• Interest in capital invested by an entrepreneur is the profit and not a cost.
• Salary to permanent staff is also a fixed cost because the staff is permanent or on a contractual basis.
• The cost of raw materials and payment of transportation of goods is a variable cost.
• The daily wages of the sweeper is also a variable cost.
• Telephone charges beyond the minimum is also a variable cost.