All of the Following,except One,would Result in Lower Average Cost

question 111

Multiple Choice

All of the following,except one,would result in lower average cost.Which is the exception?

• A)An increase in output if the firm was operating below its capacity output.
• B)Building a larger plant if the firm was experiencing increasing returns to scale.
• C)Down-sizing the scale of operations if the firm was experiencing diseconomies of scale.
• D)Down-sizing the scale of operations if the firm was experiencing constant returns to scale.

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Definitions:

Direct Materials

Raw materials that can be directly traced to the manufacturing process of a product and are a significant component of its production cost.

Unfavorable

A term often used in budgeting and financial analysis to describe results that are worse than expected or budgeted figures.

Cost Variance

The difference between actual cost and the flexible budget at actual volumes.

Actual Cost

The incurred expenditure on materials, labor, and overhead necessary to produce a product or perform a service, reflecting the genuine expense.