Which of the following is an example of a fixed cost in the production process?

• A. Wages paid to hourly workers
• B. Raw materials used in production
• C. Electricity costs that vary with output
• D. Monthly rent for factory space

Answer: (D)

Verified step by step guidance

1. Understand the definition of fixed costs: Fixed costs are expenses that do not change with the level of output produced. They remain constant regardless of how much or how little is produced.
2. Identify the nature of each option: Wages paid to hourly workers vary with hours worked, so they are variable costs. Raw materials used in production increase as more output is produced, so they are variable costs. Electricity costs that vary with output are also variable costs.
3. Recognize that monthly rent for factory space is a cost that must be paid regardless of production levels, making it a fixed cost.
4. Conclude that among the options given, the monthly rent for factory space is the example of a fixed cost because it does not fluctuate with production volume.
5. Remember that distinguishing fixed costs from variable costs is crucial for understanding cost behavior and making production decisions.