Transportation Operations LINCS Practice Exam

What type of costs are considered fixed costs?

1. Costs that fluctuate with production levels

2. Non-fluctuating costs related to business volume

3. Variable costs associated with sales

4. Direct costs related to labor

The correct answer is: Non-fluctuating costs related to business volume

Fixed costs are expenses that do not change with the level of production or business activity. This means that irrespective of how much a company produces or sells, these costs remain constant over a specific period. Examples of fixed costs include rent, salaries, and insurance. Such costs are essential for the operation of a business but do not directly tie into the volume of goods or services provided. In contrast, costs that fluctuate with production levels or that vary based on the volume of sales are categorized as variable costs. Variable costs change in direct proportion to the level of production or sales activity. Similarly, direct costs related to labor can also be variable depending on whether labor hours increase or decrease based on production needs. Understanding the distinction between fixed and variable costs is crucial for budgeting and financial planning within any transportation operation or business in general.