The Upward-Sloping Portion of the Short-Run Average Total Cost Curve

question 127

Multiple Choice

The upward-sloping portion of the short-run average total cost curve is caused by:

• A) indivisible setup costs.
• B) diseconomies of scale.
• C) the absence of fixed inputs.
• D) the presence of fixed inputs.

Recognize the significance of the contribution margin and segment margin for managerial decisions.

Identify and understand the implications of fixed and variable costs on pricing and inventory valuation decisions.

Understand the concept of absorption costing versus variable costing and their impact on net operating income.

Calculate net operating income under both absorption and variable costing.

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Definitions:

Direct Labor Costs

Expenses that are directly associated with the manufacturing of a product or the delivery of a service, such as wages of workers on the production line.

Factory Overhead

Indirect manufacturing costs not directly tied to individual products, encompassing expenses like factory rent, utilities, and equipment depreciation.

Work in Process Inventory

Items in a manufacturing process that are partially completed but not yet finished goods.

Raw Materials Used

The quantity of basic materials and components consumed in the production process to manufacture goods.