Which description best characterizes fixed costs?

• A. Costs that vary with production; examples: materials, commissions.
• B. Costs that do not vary with production; examples: rent, salaries.
• C. Costs that are excluded from the income statement.
• D. Costs that arise only after reaching break-even.

Answer: (B)

Fixed costs stay the same no matter how much you produce. They’re incurred whether you’re making one unit or a thousand, with rent and salaries as classic examples. This is different from variable costs, which rise or fall with output (like materials or commissions). Fixed costs show up on the income statement as ongoing expenses and aren’t tied to reaching any particular production level. So the description that best fits is that fixed costs do not vary with production, such as rent and salaries.