Podcast
Questions and Answers
A company manufacturing shoes experiences a surge in orders. Which of the following costs will MOST likely increase proportionally with the rise in production?
A company manufacturing shoes experiences a surge in orders. Which of the following costs will MOST likely increase proportionally with the rise in production?
- Cost of leather and rubber (correct)
- Rent for the factory
- Depreciation of machinery
- Salaries of the management team
A small bakery is assessing its costs. If the bakery decides to remain closed for the month of January due to low demand, which of the following costs would they STILL need to pay?
A small bakery is assessing its costs. If the bakery decides to remain closed for the month of January due to low demand, which of the following costs would they STILL need to pay?
- Rent for the bakery space (correct)
- Wages of part-time staff (paid hourly)
- Cost of packaging materials
- Cost of flour and sugar
A technology firm leases office space for $10,000 per month and pays its employees $50 per hour. In July, the firm produced 1,000 units, with employees working 500 hours. What are the TOTAL costs?
A technology firm leases office space for $10,000 per month and pays its employees $50 per hour. In July, the firm produced 1,000 units, with employees working 500 hours. What are the TOTAL costs?
- $35,000 (correct)
- $60,000
- $10,000
- $25,000
A manufacturing company observes that its total costs increased from $500,000 to $700,000 when production increased from 10,000 units to 20,000 units. If its fixed costs are $300,000, what is the variable cost PER UNIT?
A manufacturing company observes that its total costs increased from $500,000 to $700,000 when production increased from 10,000 units to 20,000 units. If its fixed costs are $300,000, what is the variable cost PER UNIT?
A company has fixed costs of $50,000. The variable cost per unit is $5. If the company sells each unit for $10, how many units must the company sell to break even (where total revenue equals total cost)?
A company has fixed costs of $50,000. The variable cost per unit is $5. If the company sells each unit for $10, how many units must the company sell to break even (where total revenue equals total cost)?
Which of the following statements BEST describes the relationship between fixed costs and production levels in the short run?
Which of the following statements BEST describes the relationship between fixed costs and production levels in the short run?
A business owner is deciding whether to invest in new machinery. Which type of cost is MOST relevant when making this decision?
A business owner is deciding whether to invest in new machinery. Which type of cost is MOST relevant when making this decision?
A company's total costs are $1,500,000 when producing 10,000 units, and $2,200,000 when producing 20,000 units. Assuming a linear cost structure, what are the fixed costs?
A company's total costs are $1,500,000 when producing 10,000 units, and $2,200,000 when producing 20,000 units. Assuming a linear cost structure, what are the fixed costs?
How would the increase in automation affect the cost structure of a manufacturing company, assuming that increases depreciation but reduces some labour costs?
How would the increase in automation affect the cost structure of a manufacturing company, assuming that increases depreciation but reduces some labour costs?
A furniture company initially produces 100 chairs for a total cost of $10,000, of which $4,000 are fixed costs. If the company increases production to 200 chairs, and assuming fixed costs remain constant, what is the new total cost, given that variable costs are linear?
A furniture company initially produces 100 chairs for a total cost of $10,000, of which $4,000 are fixed costs. If the company increases production to 200 chairs, and assuming fixed costs remain constant, what is the new total cost, given that variable costs are linear?
Flashcards
Fixed Costs
Fixed Costs
Costs that remain constant regardless of output levels in the short run.
Variable Costs
Variable Costs
Costs that change directly with the level of production output.
Raw Materials
Raw Materials
Raw materials that increase as bread production increases.
Total Cost (TC)
Total Cost (TC)
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Variable Costs
Variable Costs
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Fixed Costs
Fixed Costs
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Fixed cost examples
Fixed cost examples
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Total Costs
Total Costs
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Variable Cost (VC)
Variable Cost (VC)
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Fixed costs stay constant
Fixed costs stay constant
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Study Notes
- Costs stay the same in the short run regardless of output levels which are referred to as fixed costs.
- Rent, insurance, heating, depreciation, business rates and capital costs are examples of fixed costs.
- Fixed costs do not change with output in the short run but may increase due to inflation, for example.
- A firm producing dolls has fixed costs of £400,000 regardless of how much is produced.
Variable Costs
- Variable costs increase directly as output rises.
- If a firm doesn't produce anything, its variable costs will be zero.
- Variable costs include raw materials, fuel, packaging, and wages.
- A doll manufacturer has variable costs of £2 per doll.
- Producing 100,000 dolls will cost £200,000 (£2 x 100,000), while 600,000 dolls will cost £1,200,000 (£2 x 600,000).
- Variable costs increase linearly with output.
Total Cost
- Combining fixed and variable costs determines a business's total cost.
- Total cost of production is what it costs to produce a certain level of output.
- As output increases, so does total cost.
- Total Cost (TC) = Fixed Cost (FC) + Variable Cost (VC)
- A business has fixed costs of £400,000 and variable costs of £2 per doll.
- With zero output, total costs are £400,000.
- When output is 300,000 dolls, total costs become £1,000,000.
- When output is 600,000, total costs are £1,600,000.
- As output increases, fixed costs become a smaller proportion of total costs.
Average Cost
- Average cost, also known as unit cost, is the cost per unit of production.
- Average Cost = Total Cost / Output
Profit and Loss
- Businesses calculate costs and revenue to determine profit or loss.
- Profit is the difference between total revenue and total costs.
- Profit = Total Revenue - Total Costs
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