Costs are classified as fixed or variable on basis of

The correct answer is: D. both a and b

Costs are classified as fixed or variable on the basis of a specific activity and a given time period.

• Fixed costs are costs that do not change in total with changes in the level of activity. For example, rent is a fixed cost because it does not change regardless of how much product is produced.
• Variable costs are costs that change in total in direct proportion to changes in the level of activity. For example, the cost of raw materials is a variable cost because it changes in direct proportion to the number of units produced.

The time period over which costs are analyzed can also affect the classification of costs. For example, the cost of a machine may be considered a fixed cost in the short run, but it may be considered a variable cost in the long run. This is because the cost of a machine is not fixed over the long run, but it may be fixed over a shorter period of time, such as a year.

In general, costs are classified as fixed or variable based on the relationship between the cost and the level of activity. However, the time period over which costs are analyzed can also affect the classification of costs.