Kat runs a cake shop. Her monthly expenses are listed below.
For each cost, indicate whether the cost is a fixed cost or a variable cost of producing cakes in the short run.

a. Ingredients (flour, butter, sugar).
b. Bakers (cooks).
c. Rent.
d. Payments for equipment (ovens).
e. Interest payments for borrowed capital.

a. Ingredients (flour, butter, sugar).              Variable Cost

b. Bakers (cooks).                                          Variable Cost

c. Rent.                                                             Fixed  Cost

d. Payments for equipment (ovens).            Fixed  Cost

e. Interest payments for borrowed capital. Fixed  Cost

Explanation:

All the expense which vary with the level of activity. Ingredients and Bakers cost will be increased with the level of sales / production.

All the cost which is fixed and do not vary with the level of activity. Rent, Equipment cost and interest payments are all fixed costs

Ingredients (flour, butter, sugar).              Variable Cost

Bakers (cooks).                                          Variable Cost

Rent.                                                             Fixed  Cost

Payments for equipment (ovens).            Fixed  Cost

Interest payments for borrowed capital. Fixed  Cost

Explanation:

Variable costs are costs that change as the quantity of the good or service that a business produces changes.. Ingredients and Bakers cost will increase or decrease with the level of sales / production.

Fixed costs does not change with an increase or decrease in the amount of goods or services produced or sold. Like the rent, buying of equipment, etc