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Chapter 8: Problem 6

Which of the following is most likely to be a variable cost? (LO1) a) Real estate taxes b) Rental payments of IBM equipment c) Interest on bonded indebtedness d) Fuel and power payments

Short Answer

Expert verified
d) Fuel and power payments is the most likely variable cost.

Step by step solution

01

Define and understand variable costs

A variable cost is a cost that can change as a business's production level changes. When production increases, variable costs typically increase. When production decreases, variable costs decrease. Examples of variable costs include raw materials, packaging, and labor. On the other hand, fixed costs, such as rent, remain constant regardless of the level of production.
02

Identify fixed costs in the given options

Take a look at each option and determine if it's a fixed cost or not. a) Real estate taxes - These are costs imposed by the local government to the owner of the real estate property, and these costs generally remain constant for a specific period. b) Rental payments of IBM equipment - Regardless of a company's production level, the rental payments for the equipment most likely remain constant during the rental term. c) Interest on bonded indebtedness - The interest rate charged on bonds is constant during the bond period, and it does not vary with the productivity level of the company.
03

Identify the variable cost in the given options

Based on the understanding of variable costs, we can identify the option that is most likely a variable cost. In this case, the most likely variable cost is: d) Fuel and power payments - Fuel and power usage would increase or decrease based on the level of production; therefore, this cost is a variable cost. In conclusion, the answer is:
04

Answer

d) Fuel and power payments is the most likely variable cost.

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Most popular questions from this chapter

When output is zero, fixed cost is ______ and variable cost is _____. a) zero, zero b) zero, more than zero c) more than zero, zero d) more than zero, more than zero

When total output is maximized, marginal output is ____. a) rising b) falling c) positive d) negative e) zero

Which statement is the most accurate? a) Virtually no one getting married thinks that considering whether or not to have a large wedding is mainly an economic decision. b) Most American families holding large weddings get by for less than \(\$ 2,000\). c) When making a wedding, it is impossible to think in terms of fixed costs and variable costs. d) Whether to hold a wedding in city hall or in a wedding hall is at least partially an economic decision.

We find price by dividing _____. a) total revenue by output b) output by total revenue c) total cost by output d) output by total cost

If price is above ATC, the firm will _____. a) shut down in the short run and go out of business in the long run b) shut down in the short run and stay in business in the long run c) operate in the short run and go out of business in the long run d) operate in the short run and stay in business in the long run
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