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Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a variable cost?
- a)Cost of raw materials.
- b)Cost of equipment.
- c)Interest payment on past borrowings.
- d)Payment of rent on building.
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
Total cost in the short run is classified into fixed costs and variabl...
Variable Cost in Short Run
In the short run, total cost is divided into fixed costs and variable costs. Variable costs are expenses that change in proportion to the level of production or output. They are directly related to the volume of units produced.
Examples of variable costs include the cost of raw materials, direct labor costs, and other expenses that vary with the amount of output produced.
Explanation of options
a) Cost of raw materials: This is an example of a variable cost as it varies with the volume of production. If more units are produced, more raw materials will be required, and the cost of raw materials will increase accordingly.
b) Cost of equipment: This is an example of a fixed cost as it does not change with the volume of production. The cost of equipment is incurred upfront and is not affected by the number of units produced.
c) Interest payment on past borrowings: This is an example of a fixed cost as the interest payment is a contractual obligation that does not vary with the volume of production.
d) Payment of rent on building: This is an example of a fixed cost as the rent payment is a contractual obligation that does not vary with the volume of production.
Conclusion
In conclusion, variable costs are expenses that change in proportion to the level of production or output. The cost of raw materials is an example of a variable cost as it varies with the volume of production.
In the short run, total cost is divided into fixed costs and variable costs. Variable costs are expenses that change in proportion to the level of production or output. They are directly related to the volume of units produced.
Examples of variable costs include the cost of raw materials, direct labor costs, and other expenses that vary with the amount of output produced.
Explanation of options
a) Cost of raw materials: This is an example of a variable cost as it varies with the volume of production. If more units are produced, more raw materials will be required, and the cost of raw materials will increase accordingly.
b) Cost of equipment: This is an example of a fixed cost as it does not change with the volume of production. The cost of equipment is incurred upfront and is not affected by the number of units produced.
c) Interest payment on past borrowings: This is an example of a fixed cost as the interest payment is a contractual obligation that does not vary with the volume of production.
d) Payment of rent on building: This is an example of a fixed cost as the rent payment is a contractual obligation that does not vary with the volume of production.
Conclusion
In conclusion, variable costs are expenses that change in proportion to the level of production or output. The cost of raw materials is an example of a variable cost as it varies with the volume of production.
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Total cost in the short run is classified into fixed costs and variable costs. Which one of the following is a variable cost?a)Cost of raw materials.b)Cost of equipment.c)Interest payment on past borrowings.d)Payment of rent on building.Correct answer is option 'A'. Can you explain this answer?
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