Fixed operating costs can be dangerous because

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BlackTom AI · Accepted Answer

Restating the question: Fixed operating costs can be dangerous because

Option 1: 'They change with product mix' — This is incorrect. Fixed costs remain constant regardless of changes in product mix; they do not vary with volume in the short term, whereas variable costs would change with product mix.

Option 2: 'They disappear when sales are low' — This is incorrect. Fixed costs do not vanish when sales drop; the business still incurs these costs even if revenue and profits shrink.

Option 3: 'They must be paid even if the business makes no gross profit' — This is correct. Fixed operating costs are obligations the business owes regardless of profitability. If sales are zero or gross profit is zero, fixed costs still need to be covered, which can threaten viability.

Option 4: 'Customers do not like fixed expenses' — This is illogical in the context of fixed costs. Customers don’t directly interact with or react to a company’s fixed cost structure; the statement misattributes the concept and doesn’t address why fixed costs are dangerous.

In summary, the key point is that fixed costs remain constant and must be paid even when revenue is insufficient to cover them, which makes them potentially dangerous for the business. The other options describe characteristics that do not apply to fixed costs or misinterpret their behavior.

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Fixed operating costs can be dangerous because

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