Use the Following to Answer Questions

question 40

Multiple Choice

Use the following to answer questions:
-(Table: Cakes) Look at the table Cakes. Pat is opening a bakery to make and sell special birthday cakes. She is trying to decide how many mixers to purchase. Her estimated fixed and average variable costs if she purchases one, two, or three mixers are shown in the table. Assume that average variable costs do not vary with the quantity of output. If Pat purchases two mixers and bakes 400 cakes per day, what is her average fixed cost?

• A) $0.02
• B) $3.75
• C) $500
• D) $1,508

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Definitions:

Period Costs

Expenses that are not directly tied to production activity and are expensed in the period they are incurred.

Variable Selling Expense

Costs that vary directly with the volume of sales, such as commissions and shipping charges.

Fixed Selling Expense

Costs associated with the selling process that do not vary with the level of sales, such as salaries of sales personnel and rent for sales space.

Variable Administrative Expense

Indirect costs that change in proportion with the level of a company’s production or sales activities.