In the grain combine scenario, which cost is a fixed annual expense?

In the grain combine scenario, which cost is a fixed annual expense?

• A. Annual fixed costs of 12,000
• B. Variable costs per acre of 10
• C. Purchase price of 90,000
• D. Hiring cost of 25 per acre

Answer: (A)

Costs are either fixed or variable. A fixed annual expense stays the same every year, no matter how much grain you harvest. The annual fixed costs option represents an amount paid each year that doesn’t change with acres or yield, so it fits the description of a fixed annual expense. The other options depend on production: costs per acre or hiring per acre grow with more acres, and the purchase price is a capital investment that would typically be spread out over time through depreciation rather than treated as a single annual expense. So the fixed annual costs of 12,000 is the correct choice.

Costs are either fixed or variable. A fixed annual expense stays the same every year, no matter how much grain you harvest. The annual fixed costs option represents an amount paid each year that doesn’t change with acres or yield, so it fits the description of a fixed annual expense. The other options depend on production: costs per acre or hiring per acre grow with more acres, and the purchase price is a capital investment that would typically be spread out over time through depreciation rather than treated as a single annual expense. So the fixed annual costs of 12,000 is the correct choice.