In the Short Run Average Costs Eventually Increase Because of ________

question 197

Multiple Choice

In the short run average costs eventually increase because of ________, and in the long run average costs eventually increase because of ________.

• A) diminishing returns; diseconomies of scale
• B) diseconomies of scale; diminishing returns
• C) constant returns to scale; decreasing returns to scale
• D) increasing returns to scale; diseconomies of scale

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Definitions:

Predetermined Factory Overhead Rate

The rate used to apply factory overhead costs to the goods manufactured. The rate is determined by dividing the budgeted overhead cost by the estimated activity usage at the beginning of the fiscal period.

Activity Base

A measure used in costing, representing a unit of activity that triggers costs, helping to allocate costs more accurately.

Factory Overhead

Factory overhead refers to all indirect costs associated with manufacturing, excluding direct materials and direct labor expenses.

Direct Labor Hours

The total hours worked by employees directly involved in the production process.