In the Short Run,average Total Costs at First Decrease and Then

question 45

Multiple Choice

In the short run,average total costs at first decrease and then increase as more output is produced because

• A) marginal cost is at first greater than average total costs,then falls below it.
• B) average fixed costs continually decrease.
• C) average variable costs at first decrease and then increase at the same level of output.
• D) total cost continually increases.
• E) marginal cost is at first less than average total costs,then rises above it.

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Definitions:

Variable Costing

An accounting method that considers only variable costs as product costs and treats fixed costs as period costs.

Direct Costing

An accounting method that identifies variable costs directly associated with production and excludes fixed costs from product costing.

Absorption Costing

An accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed overhead - in the cost of a product.

Variable Costing

An accounting method that charges only variable production costs to units produced and treats fixed manufacturing overhead as a period expense.