Question

The relevant production range for Orleans Trailers, Inc. is between 130,000 units and 180,000 units per month. If the company produces beyond 180,000 units per month, ________.

A) the fixed costs will remain the same, but the variable cost per unit may change
B) the fixed costs may change, but the variable cost per unit will remain the same
C) the fixed costs and the variable cost per unit will not change
D) both the fixed costs and the variable cost per unit may change

Answer 1

Both fixed costs and variable costs per unit may change if Orleans Trailers, Inc. goes beyond its relevant production range of 130,000 to 180,000 units per month, as new resources and changes in production dynamics can affect costs.

Step-by-step explanation:

If Orleans Trailers, Inc. produces beyond its relevant production range of 130,000 units to 180,000 units per month, then both the fixed costs and the variable cost per unit may change. At zero production, fixed costs such as rent and salaries are still incurred.

However, as production increases, these costs remain constant within the relevant range. Variable costs, which include materials and labor, vary with production volume.

Producing beyond the 180,000 units may require additional resources, leading to a potential shift in the fixed cost structure (e.g., needing a new production facility) and changes in variable costs due to factors such as overtime pay or efficiency losses.