The Table Shows the Total Costs for a Purely Competitive

question 18

Multiple Choice

The table shows the total costs for a purely competitive firm. If the product sells for $600 a unit, the firm's short run profit-maximizing (or loss-minimizing) output is

• A)3.
• B)0.
• C)1.
• D)4.

---

Definitions:

Denominator Level

In cost accounting, it refers to the total amount of allocation base (e.g., direct labor hours, machine hours) that is used to calculate the predetermined overhead rate.

Standard Cost System

A cost accounting method that assigns expected costs to products to help in setting budgets and analyzing cost variances.

Volume Variance

The variance that arises whenever the standard hours allowed for the actual output of a period are different from the denominator activity level that was used to compute the predetermined overhead rate. It is computed by multiplying the fixed component of the predetermined overhead rate by the difference between the denominator hours and the standard hours allowed for the actual output.

Variable Manufacturing Overhead

Costs that fluctuate with production volume, such as indirect materials, indirect labor, and other expenses that increase or decrease as production levels change.