Question

Suppose Bev's Bags makes two kinds of handbags—large and small. Bev rents an industrial space where she keeps the fabric, the industrial sewing machine, her measuring board and cutting shears, extra needles, thread and buttons, and labels. If Bev were to produce no bags, which of the following is true regarding Bev's costs?
a. The fixed cost of thread would stay the same.

b. The variable cost of cutting shears would drop to zero.

c. All are correct.

d. The variable cost of fabric would drop to zero.

Answer 1

Answer:

c. All are correct.

Explanation:

Variable costs depend on the number of units produced, if production drops to zero, all associated variable costs also drop to zero; options b and d are correct.

Fixed cost remain the same with changes in the production volume. Therefore, even if Bev's Bags produced no bags, fixed cost of thread would stay the same; option a is correct.

Therefore, all are correct.