Question

Onini, Inc. produces one product with two production levels: 20,000 units and 80,000 units. At each production level, Onini's per-unit costs for Costs A, B, and C are:
Cost A (per unit) Cost B (per unit) Cost C (per unit)
Production = 20,000 $12.00 $15.00
$20.00
Production = 80,000 $12.00 $11.25
$5.00
What type of cost is each?
A. Cost A is variable, Cost B is mixed, and Cost C is fixed.
B. Cost A is fixed, Cost B is variable, and Cost C is mixed
C. Cost A s variable, Cost B is fixed, and Cost C is mixed.
D. Cost A is fixed, Cost B is mixed, and Cost C is variable.

Answer 1

Answer:

A

Explanation:

Fixed costs are costs that do not vary with output. e,g, rent, mortgage payments

If production is zero or if production is a million, Mortgage payments do not change - it remains the same no matter the level of output.  

Hourly wage costs and payments for production inputs are variable costs

Total fixed cost = 20,000 x 20 = 400,000

80,000 x 5 = 400,000

c is fixed cost

Variable costs are costs that vary with production

If a producer decides not to produce any output, there would be no need to hire labour and thus no need to pay hourly wages.

Variable cost is constant per unit produced. Thus A, is variable cost

Mixed cost is cost that combines fixed cost and variable cost