Question

Peak Industries saw a 20% increase in activity levels over the fourth quarter. Which of the following changes should the firm expect to see in relation to this increase?
A : a 20% increase in total costs
B : a 20% increase in variable costs
C : a 20% increase in fixed costs
D : a 20% decrease in variable costs per unit

Answer 1

Answer:

B : a 20% increase in variable costs

Step-by-step explanation:

Here the industry is seeing a 20% increase in activity levels over the fourth quarter. Since, there has been an increase in activity levels the fixed cost would remain the same but the variable cost being variable would increase with increase in production activity in same proportion as the increase in production.

B : a 20% increase in variable costs