3. Based on material in chapter 2, indicate whether each of the following statem

Question

3. Based on material in chapter 2, indicate whether each of the following statements is true or false. (a) Working capital is a variable cost. (b) If the capacity of an operation is significantly changed (e.g., a manufacturing plant), the fixed (c) Goods and services have utility because they have (d) Indirect costs can normally be allocated to a specific (e) Present economy studies are often done when the costs will also change. the power to satisfy human wants and needs. output or work activity time value of money is not a significant factor in the situation. o Overhead costs normally include all costs that are (g) Optimal volume (demand) occurs when total costs (h) There is no D* for this Scenario 1 situation: not direct costs. equal total revenues. (0) Most decisions are based on differences that are perceived to exist between alternatives. (j) A nonrefundable cash outlay (eg, money spent on a passport) is an example of an opportunity cost.

Explanation / Answer

Working capital of a business is used in its everyday operations. Hence, the statement is True. The fixed cost is directly proportional to the capacity of an operation and hence a change in the capacity of an operation changes the fixed cost. So, the statement is True. A customer purchases a product he derives some benefit from its use. Customer feels that his/her want/need is satisfied by the use of the product purchased. Wants satisfying capacity of goods or services is called Utility and Utility is the base of consumer demand. Hence this statement is True. Indirect costs are difficult to allocate to a specific output or work activity. They are generally allocated through a selected formula. Hence the statement is False.

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