Car owners can incur a number of costs. Suppose that your parents are willing to

Question

Car owners can incur a number of costs. Suppose that your parents are willing to pay for the fixed costs of your car, but you must pay the variable costs. On the chart below, identify which costs are fixed and which costs are variable.

fixed

variable

variable

fixed

fixed

variable

variable

fixed

variable

Cost description Cost type 1. Monthly car payment

fixed

2. Gasoline

variable

3. Oil changes

variable

4. Insurance

fixed

5. License plates (one-time cost)

fixed

6. Car registration (annual)

variable

7. New tires

variable

8. Toll road charges

fixed

9. Car wash

variable

Explanation / Answer

Solution:

No. Cost description Cost type

1 Monthly car payment Fixed

2 Gasoline Variable

3 Oil changes Variable

4 Insurance Fixed

5 License plates (one-time cost) Fixed

6 Car registration (annual) Fixed

7 New tires Variable

8 Toll road charges Variable

9 Car wash Variable

Explanation:

The monthly car payment and the cost of insurance will be categorised fixed cost; and the cost of gasoline and costs associated with wear and tear will be categorised variable costs. Fixed costs and fixed expenses refer to those that do not change as volume changes. Variable costs and variable expenses refer to those that increase as volume increases and they will decrease when volume decreases.

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