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# Fixed Cost Vs. Variable Cost Questions

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1. How do firms benefit from economies of scale?

2. What might be some potential disadvantages of being part of a large corporation?

3. Suppose business is booming at your firm. It is contemplating adding more capital, but the day supervisor suggests simply hiring more workers. How should the you decide which alternative to pursue?

https://brainmass.com/economics/uncertainty/568590

#### Solution Preview

1. Firms benefit from economies of scale as they may have a high proportion of fixed costs and it take very little (if any) incremental cost to expand production of a certain item. In this scenario a firm can scale up production leveraging its economies of scale. The firm benefits as the incremental cost to expand ...

#### Solution Summary

The solution succinctly answers the three questions asked in the question. The response also dives into fixed costs versus variable cost and the implications of leveraging one or the other expansion method when needed.

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## Managerial Accounting

1. The type of costing that provides the best information for breakeven analysis is:

2. Gyro Gear Company produces a single product, a special gear used in automatic transmissions. Each gear sells for \$28, and the company sells 500,000 gears each year. Unit cost data are presented below:

Variable Fixed
Direct material \$6.00
Direct labor \$5.00

The unit product cost of gears under variable costing is:

3. A company produces a single product. Variable production costs are \$12 per unit and variable selling and administrative expenses are \$3 per unit. Fixed manufacturing overhead totals \$36,000 and fixed selling and administration expenses total \$40,000. Assuming a beginning inventory of zero, production of 4,000 units and sales of 3,600 units, the dollar value of the ending inventory under variable costing would be:

4. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Units in beginning inventory 0
Units produced 7,700
Units sold 7,500
Units in ending inventory 200

Variable costs per unit:
Direct materials \$40
Direct labor \$34

Fixed costs:

What is the unit product cost for the month under variable costing?

5. A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

Selling price \$123

Units in beginning inventory 0
Units produced 5,900
Units sold 5,700
Units in ending inventory 200

Variable costs per unit:
Direct materials \$40
Direct labor \$32

Fixed costs:

The total gross margin for the month under the absorption costing approach is:

6. Which of the following would probably be the most accurate measure of activity to use for allocating the costs associated with a factory's purchasing department?

7. Production order processing is an example of a:

8. Setting up a machine to change from producing one product to another is an example of a:
A) Unit-level activity.
B) Batch-level activity.
C) Product-level activity.
D) Organization-sustaining activity

9. Designing a new product is an example of a:

10. Which of the following budgets are prepared before the production budget?

Direct Materials Budget Sales Budget
A) Yes Yes
B) Yes No
C) No Yes
D) No No

11. In preparing a master budget, top management is generally best able to:
A) prepare detailed departmental-level budget figures.
B) provide a perspective on the company as a whole.
C) point out the particular persons who are to blame for inability to meet budget goals.
D) responses a, b, and c are all correct.

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