Calculate the Ratio of Variable Costs to Sales for a Firm

question 22

Multiple Choice

Calculate the ratio of variable costs to sales for a firm with a $3 million accounting break-even revenue point,$1.2 million fixed costs,and $450,000 depreciation.

• A) 40%
• B) 45%
• C) 55%
• D) 60%

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Definitions:

Returns to Scale

The change in output resulting from a proportional change in all inputs (factors of production); it identifies whether increasing inputs leads to proportionate, more than proportionate, or less than proportionate changes in output.

Marginal Cost Curve

A graphical representation that shows how the cost of producing one more unit of a good varies as the quantity of production increases.

Average Cost Curve

A graphical representation that shows how the cost per unit of producing a good changes with changes in the volume of output.

Cost-output Elasticity

Cost-output elasticity measures the responsiveness of production costs to changes in the quantity of output produced, indicating how cost-efficiently a firm can adapt to changes in production volume.