Fixed cost is known as:
Options
APrime cost
BOverhead cost
CDirect cost
DReal cost
For any discrepancies in this question, email contact@cadada.in
Theory of Production and CostPYQ - July 2021Question 48 of 20
All Questions Correct Answer
✅ Option b — Overhead cost
All Options:
- APrime cost
- BOverhead cost
- CDirect cost
- DReal cost
Detailed Solution & Explanation
To determine the correct answer, let's break down the concept of fixed cost.
• Fixed cost refers to expenses that remain the same even if the level of production or sales changes.
• These costs are typically incurred to maintain the business operations and are not directly related to the production volume.
• Examples of fixed costs include rent, salaries, and insurance premiums.
The correct answer is related to the concept of overhead costs, which include all the indirect expenses incurred by a business.
• Overhead costs can be further divided into fixed and variable overheads, with fixed overheads being the costs that remain constant over a certain period.
• This is why fixed costs are often referred to as overhead costs, as they are part of the overall indirect expenses of the business.
On the other hand, prime cost and direct cost are incorrect because they refer to the direct expenses incurred in producing a product, such as labor and materials.
• Real cost is not a commonly used term in business economics, and it does not accurately describe the concept of fixed costs.
About This Chapter: Theory of Production and Cost
Paper
Paper 4: Business Economics
Weightage
10%
Key Topics
Function, Cost Concepts (Short/Long Run)
This chapter explores how firms produce goods and services. It covers Production Functions, the Laws of Returns (Increasing, Constant, Diminishing), and all cost concepts including Total Cost, Average Cost, Marginal Cost, Fixed Cost, and Variable Cost. Understanding why the AC and MC curves are U-shaped is crucial for exam success.
View Official ICAI SyllabusExam Strategy Tip
The relationship between MC and AC curves is a favorite examiner topic. Remember: MC cuts AC at its minimum point. Also focus on the difference between Short Run and Long Run cost curves.
Related Comparison Tables
More Questions from Theory of Production and Cost
Ready to Master Theory of Production and Cost?
Practice all 20 questions with instant feedback, earn XP, track your streaks, and ace your CA Foundation exam.
Start Practicing — It's Free