G 10 Costs, scale of production and BE analysis

Raw materials costs 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 of the following are likely causes of diseconomies of scale except ____

• week coordination between departments

• obtaining a large loan at a preferential interest rate

• low motivations level of workers

• long chains of communication

A computer manufacturing business is planning to open a new factory. It will have annual fixed costs of $1m. 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

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

One of the assumptions of break-even analysis is that the scale of production remains unchanged

• True

• False