Which of the following would be an example of a fixed cost on a farm? a. mortgage on the landb. costs of seedc. fuel to operate machineryd. charge for fertilizer for the growing season

The right answer is a. i. e mortgage on the land.

Explanation:

Fixed cost : The fixed cost is that cost which is remain same while production level increase or not. The cost is fixed that means it is not depend upon the production level capacity.

The example for fixed cost is depreciation, insurance, rent, salaries, etc.

Now we can easily defined the fixed cost in each case whether it is fixed cost or not.

a. Mortgage on the land : The mortgage is remain fixed and charged same for the number of years the loan is taken. That means the interest rate, principal amount, monthly payment is fixed.

b. Costs of seed : It is not fixed cost as it the chances of change in seed cost is very high which can be come under variable cost.

c. Fuel to operate machinery : The fuel is direct related to the production level. As production level is increased the consumption of fuel is increased so it would term as variable cost. Hence, it is not fixed cost.

d. Charge for fertilizer for the growing season : The charges is not fixed due to market conditions. It means that in boom period the company charges high price so here the price is not certain.

Hence it would be treated as variable expenses.

Thus, it is not a fixed cost.

Hence, by above explanations the right answer is a. i. e mortgage on the land.