Shipp Ltd Budgets the Following Costs for a Normal Monthly Volume

question 4

Multiple Choice

Shipp Ltd. budgets the following costs for a normal monthly volume of 500 units selling for $4,000 each. The profit (loss) using absorption costing when 500 units are produced and 400 units are sold is

• A) $840,000 loss
• B) $160,000 profit
• C) $480,000 profit
• D) $720,000 loss

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Definitions:

Average Costs

This reflects the cost for each unit, calculated by dividing the overall cost of production by the total units created.

Shutting-Down

The process a business undertakes to cease operations, often due to financial problems or a strategic decision.

Short Run

A period in which at least one factor of production is fixed, limiting the ability of a business to adjust fully to changes in market conditions.

Average Variable Costs

Costs that vary with the level of output, calculated by dividing the total variable costs by the quantity of output produced.