Economies of Scale May Arise from All but One of the Following

question 41

Multiple Choice

Economies of scale may arise from all but one of the following. Which one is it?

• A) doubling promotional expenses to expand sale more than proportionately
• B) having a larger retail space can expand sales more than proportionately
• C) spreading the fixed-costs of administration over more customers holds average costs down
• D) government economic subsidies protect firms from competition to avoid losses.

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Definitions:

Absorption Costing

An approach in accounting where the cost of a product is determined by including direct materials, direct labor, and all manufacturing overhead costs, whether variable or fixed.

Unit Product Cost

The total cost to produce one unit of product, including direct materials, direct labor, and allocated overhead.

Contribution Margin Ratio

A financial metric that shows what percentage of sales revenue is not consumed by variable costs and therefore contributes to covering fixed costs.

Segment Margin

The profit or loss generated by a particular segment of a business, after accounting for direct and indirect costs.