Question

If production volume increases from 16,000 to 20,000 units, a.total variable costs will increase by 25 percent. b.total costs will increase by 20 percent. c.mixed and variable costs will increase by 25 percent. d.total costs will increase by 25 percent.

Answer 1

Answer:

The correct answer is option a.

Explanation:

The variable cost of producing a good or service is the cost incurred on the variable factors. the variable factors are the factor inputs that vary with volume or level of output.

The production volume here is increasing by 4,000 units.

The percentage increase in production volume

= $\frac{4,000}{16,000} \times 100$

= 25%

Since, the production volume is increasing by 25% the total variable cost will also increase by 25%.