An Insurance Agent Rents a Building and Has a Three-Year

question 49

Multiple Choice

An insurance agent rents a building and has a three-year lease.An increase in the rent for the building increases the agent's

• A) total cost and average variable cost.
• B) total variable cost and average variable cost.
• C) total fixed cost and total variable cost.
• D) total fixed cost and average fixed cost.
• E) total variable cost and total cost.

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Definitions:

Merchandising Firm

A business that purchases goods and resells them at a profit without changing their basic form.

Manufacturing Firm

A business engaged in the industrial production of goods from raw materials through the use of labor and machinery.

Conversion Costs

The combined costs of direct labor and manufacturing overheads that are incurred to convert raw materials into finished goods.

Factory Overhead

Costs incurred during the manufacturing process that are not directly applicable to individual products, such as maintenance and utilities.