The Average Total Cost of Producing Laptop Computers in a Factory

question 107

Multiple Choice

The average total cost of producing laptop computers in a factory is $500 at the current output level of 100 units per week. If fixed costs equal $10 000, which of the following statements regarding cost is accurate?

• A) Average variable cost equals $400.
• B) Average fixed cost equals $10 000.
• C) Variable cost equals $50 000 per week.
• D) Total cost equals $60 000 per week.

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Definitions:

Machine-Hours

An indicator of how much output is generated in manufacturing, determined by the total hours that machinery is in use.

Predetermined Overhead Rate

A rate calculated before the accounting period begins, based on the estimated overhead costs and estimated activity level, used to allocate overhead costs to products or services.

Labor-Hours

A measure of the work performed by employees, typically represented by the number of hours worked.

Variable Manufacturing Overhead

The portion of manufacturing overhead costs that vary with the level of production output.