Chapter 21, Problem 16DQ

To determine

Concept Introduction:

Variable cost and fixed costs:

Variable costs: The variable costs can be defined as the cost that change directly with the change in the level of output. They are directly related with the level of output. These costs are termed relevant costs as well.

Fixed costs: The fixed costs can be defined as the cost that do not change directly with the change in the level of output. They are not related with the level of output. These costs are termed irrelevant costs generally.

To explain:

The reason why fixed costs depict as a horizontal line on CVP chart.