Another way of addressing slippery rail is to wait until it begins to develop. Then the company purchases sand and dumps it on the slippery tracks so that trains already en route within the rail network can proceed. If incurred, would this railroad expense be a better example of a fixed cost or a variable cost? Why?
Part 5
A.
This is an example of a fixed cost because it is a short-run cost.
B.
This is an example of a variable cost because the cost varies with the number of trains.
C.
The cost can be either fixed or variable depending on whether we are talking about the short run or long run.
B. This is an example of a variable cost because the cost varies with the number of trains.
C. The cost can be either fixed or variable depending on whether we are talking about the short run or long run.
The cost of purchasing sand and dumping it on the slippery tracks would depend on the specific terms of the purchase and the frequency at which it needs to be done. In the short run, if the company has a fixed contract to purchase and dump a certain amount of sand on the tracks, it could be considered a fixed cost. However, if the cost varies based on the number of trains or the amount of sand needed, it could be considered a variable cost in the long run. Therefore, the cost can be either fixed or variable depending on the specific circumstances and time frame.
To determine whether the expense of purchasing sand to address slippery rail is a fixed cost or a variable cost, we need to understand the definitions of these cost types.
Fixed costs are expenses that remain constant regardless of the level of activity or production. They do not vary with changes in the quantity of goods produced or services provided. Examples of fixed costs include rent, insurance, and salaries.
Variable costs, on the other hand, fluctuate in proportion to the level of activity or production. They change with the quantity of goods produced or services provided. Examples of variable costs include raw materials, direct labor, and utilities.
In the given scenario, the expense of purchasing sand to address slippery rail can be considered a variable cost. This is because the cost varies with the number of trains affected by slippery rail. When slippery rail occurs, the company needs to purchase and dump sand specifically to address the problem. The more trains affected by slippery rail, the more sand will need to be purchased, resulting in higher costs. Therefore, option B, "This is an example of a variable cost because the cost varies with the number of trains," is the most suitable answer.