Distinguish fixed costs from variable costs with examples in a startup. Which pair is correctly classified?

Distinguish fixed costs from variable costs with examples in a startup. Which pair is correctly classified?

• A. Fixed costs: materials; Variable costs: rent and salaries
• B. Fixed costs: rent and salaries; Variable costs: materials and sales commissions
• C. Fixed costs: depreciation only; Variable costs: advertising
• D. Fixed costs: utilities; Variable costs: equipment leasing

Answer: (B)

Fixed costs stay constant regardless of how much you produce or sell, while variable costs change with activity. In a startup, rent and salaries are typically fixed because you pay them whether you produce anything or not. Materials and sales commissions vary with the level of production and sales, so they are variable costs. Therefore, the pairing of fixed costs as rent and salaries and variable costs as materials and sales commissions best fits how these costs behave. Other options mix elements that don’t align cleanly: depreciation is usually fixed, advertising can be a mix of fixed and variable, and utilities or equipment leasing often include fixed components as well.

Fixed costs stay constant regardless of how much you produce or sell, while variable costs change with activity. In a startup, rent and salaries are typically fixed because you pay them whether you produce anything or not. Materials and sales commissions vary with the level of production and sales, so they are variable costs. Therefore, the pairing of fixed costs as rent and salaries and variable costs as materials and sales commissions best fits how these costs behave. Other options mix elements that don’t align cleanly: depreciation is usually fixed, advertising can be a mix of fixed and variable, and utilities or equipment leasing often include fixed components as well.