NCEA Level 1 Business Studies 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 400

Which statement best describes fixed costs?

They fluctuate with production levels.

They remain constant regardless of output.

Fixed costs are expenses that do not change with the level of production or output. This characteristic means that regardless of how much or how little a business produces, these costs remain constant over a relevant time period. Common examples of fixed costs include rent, salaries of permanent staff, and insurance. They are essential for businesses to manage because, unlike variable costs, they can create a financial obligation that must be met no matter what happens to sales or production.

The other options do not accurately capture the nature of fixed costs. Some costs may fluctuate with production levels, which would be categorized as variable costs, while incurring costs only during peak seasons or varying by department does not align with the definition of fixed costs either. Understanding the distinction between fixed and variable costs is crucial for businesses when making budgeting and financial decisions.

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They are only incurred during peak seasons.

They can vary significantly by department.

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