ABC company prepares tax returns. ABC has one accountant paid an annual salary of 87,000 in one year, the accountant can complete a maximum of 1000 tax returns. What is the total labor cost if the accountant prepares 200 returns this year?
Answer
Total labor cost = $ 87,000
Explanation:
Fixed cost refers to that type of cost which remains constant irrespective of the level of production.
Example: Rent, Salary, Insurance, etc.
In this case, salary is fixed cost and total labor cost will be $ 87,000 irrespective of number of returns prepared.
In simple words, think like this: Whether the accountant prepares 100 turns or 200 returns or 1,000 returns, what salary will he be paid?
The answer will be $ 87,000.
In case of any doubt, please comment.
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