A Company Manufactures Furniture

question 26

Multiple Choice

A company manufactures furniture.Which of the following costs would be included in the production of a piece of furniture as a direct cost,and used to calculate the cost per unit,when making tables?
(i) The wood used to make the table tops
(ii) The varnish and paint used
(iii) The wages of the workers on the assembly line,paid per table manufactured.
(iv) The salary of the supervisor of the assembly line
(v) The salary of the accountant producing the annual accounts for the company.

• A) (i) and (ii) only as these are used in the product
• B) (i) - (iv) as these are part of production. The accountant is not
• C) (i) and (iii) only. The others are indirect costs
• D) All of them. The company cannot exist without all of these costs and more

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Definitions:

Substitution Effect

The change in demand for a good or service caused by a change in its price, making consumers substitute it with another good or service.

Income Effect

The shift in income levels for either a person or the economy and its influence on the demand for specific goods or services.

Labor Supply

Refers to the total hours that workers are willing and able to work at a given wage rate.

Marginal Utility

The additional pleasure or advantage gained from consuming one further unit of a particular product or service.