In: Operations Management
Select the correct choice for each question
Workers at station producing output in a process would probably be considered
Natural gas to heat office space where the CEO/CFO work would probably be considered
Electricity to run machines that produce output would probably be considered
Costs that change as output level changes are considered CEO and CFO salaries would probably be considered
Costs that do not change as output level changes are considered
Pick from these options: Variable cost fixed cost
First, let us understand the key difference between Fixed Cost and Variable Cost. Fixed costs don't change with a change in volume or output. Whereas, Variable costs change with either a change in volume or output.
1. Workers at a station producing output in a process would be considered as Fixed Cost because the wages and salaries given to workers are a form of fixed cost, as they do not change with a change in volume and output. The workers are compensated the same, even if the workload fluctuates. This makes it a fixed cost.
2. Natural gas to heat office space where CEO or CFO work is considered as Variable Cost because it changes according to the volume of usage by the personnel. In winter, the consumption would be more because there will be a need to keep the office space warm. In summers, there is little to no use. So, it is a variable cost.
3. Electricity to run machines that produce output is considered as Variable Cost because it changes based on the output produced by each machine. If the machine produces more output, more electricity is needed and if it produces little output then the consumption of electricity also goes down. So, it is a variable cost.
4. Costs that change as output level changes like the salaries of CEO and CFO are considered as Variable Costs because this is the very definition of variable cost (Change due to change in output).
5. Costs that do not change as output level changes are considered to be Fixed Costs because this is the very definition of fixed cost (No change even if there is a change in output).