Question

Lmwood Inc. manufactures guitars. Elmwood's management has discovered that after 3,000 guitars are manufactured, there is a need to add an additional quality control engineer. If this is done it is an excellent example of a semi variable cost.

A) True
B) False

Answer 1

Elmwood Inc. incurring additional costs for a quality control engineer after 3,000 guitars is an example of a semi-variable cost, which is true.

Step-by-step explanation:

The statement that when Elmwood Inc. adds an additional quality control engineer after producing 3,000 guitars represents a semi-variable cost is true. Semi-variable costs, also known as mixed or semi-fixed costs, consist of both fixed and variable components.

The fixed component is the salary of the quality control engineers already on staff, while the variable component is the additional cost of hiring an extra engineer once the production level exceeds 3,000 guitars. This results in a stepped cost function, where costs remain fixed up to a certain level of production or capacity, and then increase in steps as production increases beyond those levels.