Suppose a Firm Uses Workers and Office Space to Produce

question 60

Multiple Choice

Suppose a firm uses workers and office space to produce output. The firm is locked into a year-long lease on its office space, but it can easily vary the number of employee-hours it uses each day. The table below describes the relationship between the number of employee-hours the firm uses each day and the firm's daily output. Each unit of output sells for $2, the hourly wage rate is $14, and the rent on the office space is $50 per day. $$\begin{array} { | c | c | } \hline \begin{array} { c } \text { Employee-Hours } \\\text { Per Day }\end{array} & \begin{array} { c } \text { Output } \\\text { Per Day }\end{array} \\\hline 0 & 0 \\\hline 1 & 40 \\\hline 4 & 80 \\\hline 9 & 120 \\\hline 15 & 160 \\\hline 23 & 200 \\\hline\end{array}$$ When the firm uses 9 employee-hours, it's total variable cost each day is:

• A)$30
• B)$56
• C)$84
• D)$126

Analyze the implications of flexible and static budgets.

Distinguish between flexible budget variance, labour rate variance, and labour efficiency variance.

Interpret variable overhead efficiency variance and its impact on production cost control.

Understand the significance of standard quantity and cost on the standard cost card.

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