Question

11) Outside the relevant range, variable costs, such as direct material costs ________. A) will not change proportionately with changes in production volumes B) will decrease proportionately with changes in sales volumes C) will remain the same with changes in production volumes D) will increase proportionately with changes in sales volumes

Answer 1

Answer:

A) will not change proportionately with changes in production volumes

Explanation:

Variable costs are the expenses that vary as the production level increase or decrease. Usually, an increase in output leads to a proportionate rise in variable costs in a period. An example of variable cost is raw materials. Variable costs increase proportionally with output up to the optimal level.

Beyond the optimal or the normal range, variable costs tend to rise at a higher rate than the output level. The concept of diminishing marginal returns takes effect. As output increases beyond the normal range, variable cost rise at an increasing rate making the gains from the increased production decline.