True or false: A cost may be fixed for one decision and variable for another

True or false: A cost may be fixed for one decision and variable for another

• A. True
• B. False
• C. Not enough information
• D. Depends on the decision

Answer: (D)

Costs are characterized as fixed or variable relative to the specific decision and the driver you use to measure that decision. The same cost can behave differently depending on the decision being analyzed and the time horizon, so it can be fixed in one context and variable in another. For example, a lease payment may be fixed with respect to production volume in a short-run decision, but if you change the decision to outsource or alter capacity, the cost behavior could reflect a different driver and appear variable. Because cost behavior depends on the decision context, the correct answer is that it depends on the decision.

Costs are characterized as fixed or variable relative to the specific decision and the driver you use to measure that decision. The same cost can behave differently depending on the decision being analyzed and the time horizon, so it can be fixed in one context and variable in another. For example, a lease payment may be fixed with respect to production volume in a short-run decision, but if you change the decision to outsource or alter capacity, the cost behavior could reflect a different driver and appear variable. Because cost behavior depends on the decision context, the correct answer is that it depends on the decision.