Fixed costs in CVP are which of the following?

Fixed costs in CVP are which of the following?

• A. Fixed costs rise with production
• B. Fixed costs remain fixed throughout the activity range
• C. Fixed costs vary with volume
• D. Fixed costs are zero at breakeven

Answer: (A)

In CVP analysis, fixed costs stay the same across the relevant range of activity. They do not change with how much is produced or sold; they are incurred to keep the operation running and are only altered if you change the scale of capacity (a step-change, for example). That’s why the best answer is that fixed costs remain fixed throughout the activity range. The idea that fixed costs rise with production would imply they vary with volume, which is not the case for fixed costs. Also, fixed costs are not zero at the breakeven point—the breakeven point occurs when total contribution covers all fixed costs, not when fixed costs disappear.

In CVP analysis, fixed costs stay the same across the relevant range of activity. They do not change with how much is produced or sold; they are incurred to keep the operation running and are only altered if you change the scale of capacity (a step-change, for example).

That’s why the best answer is that fixed costs remain fixed throughout the activity range. The idea that fixed costs rise with production would imply they vary with volume, which is not the case for fixed costs. Also, fixed costs are not zero at the breakeven point—the breakeven point occurs when total contribution covers all fixed costs, not when fixed costs disappear.