-If Average Variable Costs Are Increasing While Average Total Costs

question 262

Multiple Choice

-If average variable costs are increasing while average total costs are decreasing, then

• A) marginal cost must lie between average variable and average total costs.
• B) marginal cost must equal average variable cost.
• C) marginal cost must equal average total cost.
• D) fixed costs must be zero.

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Definitions:

Variable Costing

A costing method that only includes variable production costs in the cost of goods sold and treats fixed overhead as a period expense.

Fixed Overhead

Expenses that do not vary with the level of production or sales, including rent, salaries, and insurance costs.

Period Cost

Costs that are not directly tied to the production process and are instead expensed in the period they are incurred, such as selling, administrative, and other expenses.

Manufacturing Costs

The total expenses involved in making a product, including direct materials, direct labor, and factory overhead.