Differentiate fixed, variable, and mixed costs with examples.

• A. Fixed costs stay constant (e.g., rent); variable costs vary with output (e.g., materials); mixed costs have both fixed and variable components (e.g., utility bill with base charge).
• B. Fixed costs vary with output; variable costs stay constant (e.g., rent); mixed costs are always fixed.
• C. Fixed costs include salaries; variable costs are always overhead; mixed costs are untraceable.
• D. Fixed costs are only for one period; variable costs ignore output levels.

Answer: (A)

Costs are grouped by how they change as production or activity levels change. Fixed costs stay the same no matter how much you produce (rent is a classic example). Variable costs change in direct proportion to output (materials used per unit is a typical example). Mixed costs have both a fixed part and a variable part—there’s a base charge plus an amount that varies with activity (a utility bill with a base charge plus usage is a good illustration).

This combination of definitions and examples is why the statement is the best fit: fixed costs stay constant (rent), variable costs vary with output (materials), and mixed costs combine a fixed component with a variable component (utility bill with a base charge). The other descriptions mix up how these costs behave—like claiming fixed costs vary with output or that variable costs are always overhead, or that fixed costs are only for one period—so they don’t align with how costs actually behave in response to activity levels.