In cost-volume-profit analysis, which statement about fixed and variable costs is true?

• A. Fixed costs stay constant; variable costs vary with volume.
• B. Fixed costs vary with volume; variable costs stay constant.
• C. Both fixed and variable costs are fixed.
• D. Neither fixed nor variable costs exist in healthcare.

Answer: (A)

In cost-volume-profit analysis, fixed costs stay constant as activity or patient volume changes, while variable costs change in direct relation to that volume. This means fixed costs are the same no matter how many units you produce or how many patients you serve (within a relevant range), whereas variable costs increase or decrease in direct proportion to the amount of activity. The total cost line in CVP has a fixed-cost intercept and a slope determined by the per-unit variable cost, so as volume grows, total costs rise because more variable costs are incurred, even though the fixed portion remains unchanged. In healthcare, examples include facility rent or salaries of administrators (fixed costs) and supplies used per patient or procedure (variable costs). The incorrect statements would imply fixed costs change with volume, or both costs are fixed, or that healthcare has no such cost distinctions; all of these misstate how costs behave in CVP analysis.