Fixed manufacturing costs refer to costs that do not vary with the level of production activity within a

relevant range. These costs include expenses such as depreciation, rent, property taxes, and salaries

of permanent employees in the production facility. Their primary purpose is to ensure the availability

and operational readiness of production facilities, regardless of fluctuations in production levels.

Breakdown of Answer Choices:

(A) Correct – To ensure availability of production facilities

Fixed manufacturing costs are incurred to maintain and operate production facilities, ensuring that

they remain functional and available for production when needed. These costs exist even if no units

are produced, emphasizing their role in sustaining the production infrastructure.

(B) Incorrect – To decrease direct expenses related to production

Fixed manufacturing costs are unrelated to direct expenses, such as raw materials and labor, which

vary with production volume. Instead, they remain constant regardless of output levels.

(C) Incorrect – To incur stable costs despite operating capacity

While fixed costs remain stable within a relevant range, their primary purpose is not just cost stability

but ensuring production facilities' availability and functionality.

(D) Incorrect – To increase the total unit cost under absorption costing

Under absorption costing, fixed manufacturing costs are allocated to units produced, affecting per-

unit cost calculations. However, this is an accounting treatment rather than the core purpose of fixed

manufacturing costs.

IIA Reference and Internal Auditing Standards:

IIA’s Global Internal Audit Standards – Managing Resources Effectively

Fixed manufacturing costs ensure operational resources are available and managed efficiently.

IIA’s Guide on Cost Management and Internal Control

Highlights the role of cost structures, including fixed costs, in ensuring business continuity.

IIA’s Practice Advisory on Cost Accounting Controls

Discusses the importance of maintaining production facilities to ensure operational readiness.

Would you like further clarification on any point?