Question

Exercise 2-7A Fixed versus variable cost behavior LO 2-1 Solomon Entertainment sponsors rock concerts. The company is considering a contract to hire a band at a cost of $100,000 per concert. Required a. What are the total band cost and the cost per person if concert attendance is 3,000, 3,500, 4,000,4,500, or 5,000? b. Is the cost of hiring the band a fixed or a variable cost? Complete this question by entering your answers in the tabs below. Required A Required B What are the total band cost and the cost per person if concert attendance is 3,000, 3,500, 4,000, 4,500, or 5,000? (Round "Cost per person" answers to 2 decimal places.) 3,000 3,500 4,000 4,500 5.000 Number attending Total cost of concert Cost per person < Required A Required B >

Answer 1

Fixed costs are the costs that fixed at all levels of output. They do not change with change in number of outputs.

Out put here are number of person attending concert.

a)

	3000	3500	4000	4500	5000
Total cost of concert	$100,000	$100,000	$100,000	$100,000	$100,000
Cost per person	$33.33(100,000/3000)	$28.57(100,000/3500)	$25(100,000/4000)	$22.22(100,000/4500)	$20(100,000/5000)

b)

Here we can see that cost of hiring band is fixed per concert. It does not change with increase in number of person attending the concert.As the total cost remains constant it is a FIXED COST.

Since the cost of hiring band remains same level regardless of the number of attending it is a FIXED COST