Business Ch. 19 - Costs, scale of production and break-even

Raw materials cost for a steel manufacturer are an example of its _____ costs

• fixed

• average

• total

• variable

A bakery has weekly fixed costs of $600. The variable costs during one week of operation were $1800 and the output achieved was 6000 loaves. The average cost of each loaf was

• $0.10

• $0.30

• $0.40

• $4.00

All the following are likely causes of diseconomies of scale except

• weak coordination between departments

• obtaining a large loan at a preferential interest rate

• low motivation levels of workers

• long chains of communications

A computer manufacturing business is planning to open a new factory. It will have annual fixed costs of $1 million. The average variable cost of each computer will be $100 and the business plans to sell them for $350 each. The expected break-even level of output will be ____ units per year

• 1000

• 2500

• 4000

• 10000

The margin of safety of a hotel is currently 25 guests per month. Monthly fixed costs are $5000, variable costs per guest is $25 and average price per room per night is $45. What will the new margin of safety be if the price per room is increased to $50 per night? (Assume the number of guests remain the same)

• 25

• 50

• 75

• 100

A variable cost is one that changes over time

• True

• False

Economies of scale reduce the total costs of a business as it grows.

• True

• False

By comparing costs and revenue, a manager will be able to decide whether to continue selling a product

• True

• False

The formula for the break-even level of output is: Fixed costs / contribution per unit

• True

• False

If the variable costs of producing each unit of output are reduced, then the break-even level of output will increase (assuming no other changes).

• True

• False