If the Explicit Costs to a Firm to Produce a Unit

question 383

Multiple Choice

If the explicit costs to a firm to produce a unit of output are $6 and the firm sells 200,000 units of output for $9 per unit, the accounting profit received by the producer is

• A) $1.2 million.
• B) $850,000.
• C) $1.8 million.
• D) $600,000.

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Definitions:

Variable Costs

Expenses that change in proportion to the level of production or sales, such as raw materials and labor costs.

Operating Leverage

Operating leverage describes the extent to which a company can increase profits by increasing sales, indicating the proportion of fixed costs to variable costs.

Break-Even Point

The level of output or sales at which a company does not make a profit or loss, but all costs are covered.

Operating Leverage

measures a company's fixed costs relative to its total costs, indicating how a change in sales will affect its operating income.