Classify the following into fixed cost and variable cost giving a reas

1.	Classify the following into fixed cost and variable cost giving a reason for your answer: (i) Expenses incurred on raw material (ii) Interest on capital (iii) Salaries to permanent employees
Answer» (i) Variable cost: It is incurred only when there is production. (ii) Fixed cost: It is incurred on fixed factor capital (in the short run) and remains constant when there is no production. (iii) Fixed cost: It is payable even when there is no production.

Classify the following into fixed cost and variable cost giving a reason for your answer: (i) Expenses incurred on raw material (ii) Interest on capital (iii) Salaries to permanent employees

Answer»

(i) Variable cost: It is incurred only when there is production.

(ii) Fixed cost: It is incurred on fixed factor capital (in the short run) and remains constant when there is no production.

(iii) Fixed cost: It is payable even when there is no production.