Answer the Question on the Basis of the Following Cost

question 92

Multiple Choice

Answer the question on the basis of the following cost data for a firm that is selling in a purely competitive market. $\begin{array}{ccccc}& \text { Average } & \text { Average } & \text { Average } & \\\text { Total } & \text { Fixed } & \text { Variable } & \text { Total } & \text { Marginal } \\\text { Output } & \text { Cost } & \text { Cost } & \text { Cost } & \text { Cost }\\\hline1 & \$ 150.00 & \$ 25.00 & \$ 175.00 & \$ 25.00 \\2 & 75.00 & 23.00 & 98.00 & 21.00 \\3 & 50.00 & 20.00 & 70.00 & 14.00 \\4 & 37.50 & 21.00 & 58.50 & 24.00 \\5 & 30.00 & 23.00 & 53.00 & 31.00 \\6 & 25.00 & 25.00 & 50.00 & 35.00 \\7 & 21.43 & 28.00 & 49.43 & 46.01 \\8 & 18.75 & 33.00 & 51.76 & 68.07 \\9 & 16.67 & 39.00 & 55.67 & 86.95 \\10 & 15.00 & 48.00 & 63.00 & 128.97\end{array}$ Refer to the data.At 6 units of output,total fixed cost is ____ and total cost is ____.

• A) $25;$50
• B) $50;$300
• C) $100;$200
• D) $150;$300

Understand the concept of segment margin and its role in assessing divisional performance.

Analyze the impact of discontinuing product lines on overall profitability.

Calculate net operating income incorporating common fixed expenses.

Distinguish between variable costing and absorption costing net operating incomes.

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Definitions:

Full Disclosure

A principle requiring that all material facts and information related to financial transactions be disclosed in financial statements.

Conservatism Principle

An accounting principle that advises reporting expenses and liabilities as soon as possible, but revenue only when it is ensured.

Gross Profit Method

An inventory valuation method used to estimate the cost of goods sold and ending inventory levels by applying a gross profit margin to sales.

Gross Profit Ratio

The gross profit ratio is a financial metric that measures the proportion of money left over from revenues after accounting for the cost of goods sold (COGS), expressed as a percentage.