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    Fixed and variable cost

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    As I understand it, costs such as the salary of the vice president of transportation operations are variable because the more traffic you handle, the lowers your unit costs are. In contrast, costs such as fuel are fixed because each ton-mile should entail consumption of the same amount of fuel and hence bear the same unit cost. Do you agree? Explain.

    When responding to this discussion question, assume that the fuel cost for a ton mile is the same regardless of the type of vehicle. Also assume that there are no daily changes in the price of fuel at the pump.

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    Solution Preview

    You should disagree.

    A cost is a fixed cost or a variable cost has to be seen in respect of cost in totality and not on per unit basis. The reason is that it is the total cost which is ...

    Solution Summary

    The solution explains a discussion question relating to fixed and variable cost.