Question

Which of the following is not an example of a cost that varies in total as the number of units produced changes? a. electricity per KWH to operate factory equipment b. direct materials cost c. wages of assembly worker d. insurance premiums on factory building

Answer 1

The correct answer is letter "D": insurance premiums on factory building.

Step-by-step explanation:

Manufacturers may have fixed costs, variable costs, and mixed costs. Fixed costs are those whose total costs do not vary when the volume of production changes. Variable costs are those that fluctuate due to changes in the level of production. Mixed costs are a mix of fixed and variable costs.

Thus, insurance premiums on a factory building are not an example of variable costs because they are a fixed cost.

Answer 2

Answer: Option D

Explanation: Expenses incurred by business in day to day to operations are called costs. These costs can be divided as follows:-

FIXED COST : These are the cost which are independent of the level of output.

VARIABLE COST : These are the cost which varies as per the level of output.

Increase in the level of production will increase the electricity consumption, also consumption of direct materials is directly related to number of units produced. Wages of workers are usually dependent on the output they produce. Hence, only insurance premium is a fixed cost as the company has to pay it irrespective of the level of output.