Question

A 15% increase in production volume will result in a ________.

A) 15% increase in the variable cost per unit
B) 15% increase in total mixed costs
C) 15% increase in total administration costs
D) 15% increase in total variable costs

Answer 1

A 15% increase in production volume will result in a 15% increase in total variable costs, as these costs change directly with production levels.

Step-by-step explanation:

A 15% increase in production volume will result in a 15% increase in total variable costs. Variable costs are costs associated with variable inputs, like labor and raw materials, which fluctuate with output levels. As production volume increases, these costs go up directly in proportion to the increase in output.

Fixed costs, on the other hand, such as administration costs, remain constant regardless of the level of production. Therefore, a 15% increase in production volume will not affect fixed costs or the variable cost per unit. Total mixed costs would only increase by the variable portion, not the full 15%, and total administration costs would not increase at all as they are fixed costs.