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Fixed Cost Examined

1) If fixed costs suddenly increase, how will that change the graph of fixed costs if activity, units or volume is on the x-axis and dollars are on the y-axis?

2) Indicate whether the following statement is true or false, then support your view.

If we graphed fixed costs per unit, it would appear as a straight, horizontal line, assuming we have units on the x-axis and dollars on the y-axis.

3) How does depreciation (a fixed cost) impact an organization's break-even point? And by the way, why is depreciation such a unique expense?

Solution Preview

1) If fixed costs suddenly increase, how will that change the graph of fixed costs if activity, units or volume is on the x-axis and dollars are on the y-axis?

It will increase like a step function - will increase to a new level and will then stay horizontal at that level for all units or volume

2) Indicate ...

Solution Summary

The solution examines fixed costs. How increasing a fixed cost will change a fixed costs of activity. The depreciation of a fixed cost is also examined on its impact of an organization`s break-even point.

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