FRM Corporation's Managers Have Recently Introduced New, More Efficient Equipment

question 62

Multiple Choice

FRM Corporation's managers have recently introduced new, more efficient equipment for feeding chickens. Under which of the following assumptions would life cycle costing be best applied?

• A) The product is being sold at a loss
• B) The product is being sold at a small profit
• C) The product is being sold at a loss, but expected to add to profits over time
• D) The product is being sold at a small profit, which is expected to decline over time

---

Definitions:

AVC (Average Variable Cost)

The total variable costs (costs that vary with the level of output) divided by the quantity of output produced, representing the variable cost per unit.

MC (Marginal Cost)

The rise in overall expenses associated with the production of an extra unit of a product or service.

Break-Even Point

The level of production or sales at which total revenues equal total costs, resulting in no profit or loss.

Shutdown Point

The shutdown point is the level of output and price at which a business covers its variable costs; operating below this point would lead the firm to losses greater than its fixed costs.