Question

Peak Industries saw a 20% increase in activity levels over the fourth quarter. Which of the following changes should the firm expect to see in relation to this increase?

A : a 20% increase in total costs
B : a 20% increase in variable costs
C : a 20% increase in fixed costs
D : a 20% decrease in variable costs per unit

Answer 1

Peak Industries can expect a A) 20% increase in total costs.

Step-by-step explanation:

Total cost encompasses all expenses incurred in producing a good or service, including both fixed and variable costs. It includes direct costs like raw materials and labor, as well as indirect costs like overhead. Calculating total cost is essential for determining the overall expenses associated with a business operation.

The firm can expect to see a 20% increase in total costs (option A) in relation to the 20% increase in activity levels. This is because total costs include both fixed costs and variable costs, and when activity levels increase, both types of costs tend to increase as well. However, it is important to note that the specific increase in total costs may not always be exactly 20% due to various factors affecting costs.

Answer 2

B : a 20% increase in variable costs

Step-by-step explanation:

Here the industry is seeing a 20% increase in activity levels over the fourth quarter. Since, there has been an increase in activity levels the fixed cost would remain the same but the variable cost being variable would increase with increase in production activity in same proportion as the increase in production.

B : a 20% increase in variable costs