Certified Internal Auditor (CIA) Part 3: Business Knowledge for Internal Auditing — Question 239

An organization accumulated the following data for the prior fiscal year:

Value of -

Percentage of -

Quarter -

Output Produced -

Cost X -
$4,750,000
2.9
$4,700,000
3.0
$4,350,000
3.2
$4,000,000
3.5
Based on this data, which of the following describes the value of Cost X in relation to the value of Output Produced?

Answer options

• A. Cost X is a variable cost.
• B. Cost X is a fixed cost.
• C. Cost X is a semi-fixed cost.
• D. Cost X and the value of Output Produced are unrelated.

Correct answer: B

Explanation

The correct answer is B because Cost X remains constant regardless of the level of output produced, which defines it as a fixed cost. Options A and C are incorrect as they suggest that the cost changes with production levels, while D is wrong because there is a relationship based on the nature of fixed costs.