Monaco Company has a variable cost. At the production level of 100 units, the am

Question

Monaco Company has a variable cost. At the production level of 100 units, the amount of the cost is $200. If the production level increases to 120 units A. the total cost will increase by $20 B. the total cost will increase by 20%. C. the per-unit cost will increase by $20 D. the per-unit cost will increase by 20%. 2. Richard Hamilton has a fast food franchise and pays a franchise fee. The fee is $35,000 plus 3% of gross sales. With respect to sales, the fee is a: A. Variable cost. B. Fixed cost c. Step-variable cost. D. Mixed cost. Webster has the following budgeted costs at its anticipated production level (expressed in hours): variable cost, S150,000; fixed cost, $240,000. If Webster now revises its anticipated production upward, it would expect A. total fixed cost of $240,000; and a lower hourly rate for variable cost. B. total fixed cost of $240,000; and the same hourly rate for variable cost. C. total fixed cost of S240,000; and a higher hourly rate for variable cost. total variable cost of more than $150,000; and the same hourly rate for fixed cost. D. 4. The functional form of a cost is given as: Y-a+ b X. In his equation, "b" represents A. Fixed cost in total B. Fixed cost per unit. c. Variable cost in total D. Variable cost per unit.

Explanation / Answer

1. It is given that, the company has a variable cost, that is the cost is constant per unit. The production is increased to 120 units from 100 units, that is there is 20% increase in production. Therefore, the variable cost would also increase by 20%. All the other options say, total cost will increase by $20 is not correct as total cost would increase by $40; the per-unit will not change at all. Option B, the total cost will increase by 20% is correct answer.

2. In the given case, the franchise fee is $35,000 plus 3% on sales. This cost is a mixed cost with respect to sales. Option D is correct answer.

3. If Webster revises its anticipated production upward, it would expect, the same total fixed cost of $240,000; and the same hourly rate for variable cost, because the number of hours can't be increased as the production increases with regard to variable cost hourly rate and fixed cost would not increase. Option B is correct answer.

4. "b" represents variable cost per unit where X is the no. of units. Option D is correct answer.

5. Cost per unit is remaining constant eventhough the volume in units changes. Therefore, the cost is variable cost. Option A, Variable Cost is correct answer.

Hope this is helpful!!

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