you are the owner of a firm, and your firm is experiencing "economies of scale" in production. If this is the case, will the average total cost increase, decrease or remain unchanged as you increase the level of output?

you are the owner of a firm, and your firm is experiencing "economies of scale" in production. If this is the case, will the average total cost increase, decrease or remain unchanged as you increase the level of output?

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 5DQ

See similar textbooks

Related questions

Q: Assume that a company is pursuing a strategy based on product leadership. Which if-then hypothesis…

A: If a company is pursuing a strategy based on product leadership the statement "the number of process…

Q: a. What is the box annual sales volume for each area to be able to compete on a competitive…

Q: Why would a company want to know their operating leverage when they can already calculate the number…

A: Degree of operating leverage means the division of contribution with operating income. Number of…

Q: Using the key value driver formula, what is the enterprise value in each scenario?

A: key driver formula scenario 1----> Value=…

Q: You are involved in the planning process for a firm that is expected to have a large increase…

A: Fixed costs are sunk costs and are not relevant for decision making.They are fixed and not Change…

Q: “Management should always maximize sales of the product with the highest contribution margin per…

A: Yes, the given statement is correct.

Q: A growing firm is contemplating switching from a FIFO to a LIFO cost flow assumption forinventories…

A: In case of rising prices, when the LIFO is applied the cost of goods sold will increase (as the…

Q: 26. Consider a firm that uses labor (L) and capital (K) to produce output. Which of the following…

A: (a) The firm views L and K as close substitute in production is correct.

Q: If Account Based Costing (ABC) is so great, why do such a small percentage of companies use it? Why…

A: Activity based costing is a type of Costing in which the overhead or the indirect cost are…

Q: How can the contribution margin be used to determine the profitability of Ford Motor Company's…

A: While determining the profitability of the organisation first to find out the total contribution…

Q: The firm with the largest ratio of fixed costs to total costs automatically gets the greatest…

A: Lets understand the basics. Fixed cost is a cost which is fixed over a period of time. It includes…

Q: In a manufacturing setting, "the best short-term profit maximization approach is to maximize…

A: In the short run, fixed costs are constant. Therefore, to maximize the profit, the contribution per…

Q: If a company is a multiproduct firm. a. can only utilize CVP analysis if the contribution margin…

A: c) a multiproduct firm can earn a lower than expected profit though the total number of units sold…

Q: current trend in managerial accounting will inform this firm's decision-making process

A: Option B is wrong because just-in-time inventory is an inventory management technique in which…

Q: What analysis ensures that the income for the firm will cover its variable costs? a. ratio…

A: Companies need to analyse how many products to sell or how much sales to make in a financial year to…

Q: In response to a request from your immediate supervisor, you have prepared a CVP graphportraying the…

A: Cost-volume profit graph: Cost-volume profit graph is a graphical representation of sales, cost and…

Q: Requirements for Question 2 Use your knowledge of management accounting and marginal costing to…

A: “Since you have posted a question with many sub-parts, we will solve three sub-parts for you. To get…

Q: In a multi-product company, as the mix of the products being sold changes, the overall contribution…

A: Overall contribution margin is the mix of individual contribution margin with the weights of their…

Q: Is my explanation correct? When the shit in sales toward the lower contribution margin. In the…

A: Dear student your explanation is correct. In the sales mix, if the shift in sales to a product that…

Q: The trend for cost of goods sold is it is decreasing as a percentage of sales and the trend for…

A: CVP analysis is used to analyze the impact of changes in sales volume on costs and operational…

Q: Michael Porter argues a firm cannot be at the same time a cost leader and a differentiator. Do…

Q: If a company increases its fixed costs for Product B, then the contribution margin per unit will…

Q: Which of the following statements is true? A In linear break-even analysis, the contribution margin…

A: As per the linear break-even model, the contribution margin per unit is the difference between the…

Q: Select a manufacturing organization for justifying the following quote “Companies with labor…

A: Labor costing is important when it comes to incremental and avoidable labor costs that are installed…

Q: A. The trend for cost of goods sold is increasing as a percentage of sales and the trend for total…

A: Cost of goods sold are the direct allocated cost to the goods manufactured, which have been solved…

Q: Which of the following statements is CORRECT with respect to fixed costs per unit? Select one: A.…

A: Fixed costs are those costs which do not change with change in level of activity. For example,…

Q: A high operating margin implies that ______________ . The company is in a better position to…

A: Operating margin means proportion of operating income over sales

Q: Which of the following would reduce net profit margin but have no effect on gross profit margin? a)…

A: a) Commission paid to salesmen is a selling expense charged against net profit .b) Purchase price…

Q: A paper published in the Harvard Business Review points out a new way to calculate economic profit…

A: Economic Profit: It is the profit after deducting opportunity cost from operating profit.

Q: The profit maximizing condition for a purely competitive firm is when. Price elasticity of demand is…

A: The correct answer for the above mentioned question is given in the following steps for your…

Q: When constrained by a limiting resource, managers often seek to produce those products which have:…

A: When constrained by some budget or limited sources managers often try to make products which lie in…

Q: On a CVP graph for a profitable company, the total revenue (sales) line will be steeper than the…

A: The graphical representation of the cost-volume benefit analysis is a cost volume profit graph, also…

Q: “Benchmarking against other companies enables a company to identify the lowest-cost producer. This…

A: Definition: Benchmarking: Benchmarking is the process of selection of the industry’s best…

Q: Compared to companies that have a cost structure that is mainly comprised of fixed costs, companies…

A: Operating income shows that how revenue leads to growth in operating income. It is a tool to measure…

Q: If a company increases its fixed costs for Product B, then the contribution margin per unit will a.…

A: Option c is the answer.

Q: Firms with a high degree of operating leverage:

A: Degree of operating leverage is a measure that determines the quantum of change in a company's…

Q: Which of the following create value in an industry? (Select all that apply.) When value capture…

A: Value capture is the procedure for retaining some percentage of value provided through every…

Q: osts and long-run average costs? Explain the association between return to scale and economies of…

A: Economies of scale: This term refers to the cost advantage that a firm will gain as a result of a…

Q: performance evaluation

A: Performance evaluation means many things to many people. It is a measurement process; it is an…

Q: In competitive markets economic profit becomes zero in the long-run. However, it is also possible…

A: Economic profits and losses play a crucial role in the model of perfect competition. The existence…

Q: 1) Which of the following statements describes the force that drives the distribution of resources…

A: Free enterprise economy is the system of economy which is control by market forces which are demand…

Concept explainers

Risk Management Techniques

Risk management is the procedure of recognizing, analyzing, monitoring, and preventing the risks and threatening factors of investments and business. Risks can arise from various factors including internal controls, market changes, natural disasters, and failure in productions. Risk management techniques enable entities to control and minimize the risks as well as the threatening factors of the business and it also helps to improve the business.

Question

Definition Definition Total cost of producing a certain quantity of a good, divided by the quantity produced. It is the sum of all costs (fixed and variable) required to produce one unit of output.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

If a firm's marginal revenue is smaller than its marginal cost, then the firm should collect additional information before taking any action. increase output to increase profit. keep output the same decrease output to increase profit.
The difference between the average customer’s willingness to pay and the total costs of a product is known as ______. When a company makes a profit, the difference between the price of the product and the cost of production is known as what? Value creation and value capture are key concepts for which parts of business? If a company innovates in a way that reduces its production costs without affecting any features of the product, would that create value? Suppose a price war was to erupt in the airline market, which causes prices for flights to decline, but affected nothing else about the industry. Would this change the value created by airlines? Suppose a price war was to erupt in the airline market, which causes prices for flights to decline, but affected nothing else about the industry. Would this change the value captured by airlines? Please solve all part and do not give solution in image format thanku
Maximizing profits means to ______.a. create a balance between seeking economic profits and seeking accounting profitsb. reinvest accounting profits in an effort to increase production outputs in the long runc. increase the difference between what is given up for inputs and what is received for outputsd. operate in an output range in which the firm experiences constant returns to scale
What is meant by a product’s contribution margin ratio? How is this ratio useful in planning business operations? Often the most direct route to a business decision is an incremental analysis. What is meant by an incremental analysis?
State whether each of the following statement is true or false and explain your answer. 1. The total value created by a firm is the difference between its product's price and costs.
Which of the following statements is true? A In linear break-even analysis, the contribution margin is the difference between the selling price and the average fixed cost. B The Theory of the Business Firm assumes perfect market competition. This means it assumes that the selling price decreases as a firm's production rate increases. C In the Theory of the Business Firm, profits per period are maximized at the production rate at which marginal cost equals average cost. D In the Theory of the Business Firm, profits per period are maximized at the production rate at which average cost is minimized. E All four statements are false.
Which of the following statements accurately describes the "relevant range?" a. The operation range in which fixed costs are expected to remain the same. b. The operation range in which the firm can earn a profit. c. The operation range which can satisfy unusual product demand. d. The operation range in which variable costs rise proportionately.
In competitive markets economic profit becomes zero in the long-run. However, it is also possible for some firms to earn a greater accounting profit and to enjoy a higher producer surplus than other firms. How is it possible? Explain in detail. explain it examples
Why would a company want to know their operating leverage when they can already calculate the number of units that need to be sold to reach a desired level of profit?
Consider a situation in which a firm needs to make a decision regarding the resources to allocate between two products. One product makes a significantly larger contribution margin than the other. How might the contribution margin affect the decision that the firm makes? What if both contribution margins were positive or both were negative? Are there other factors when considering the contribution margin you should look for? What makes the contribution margin positive or negative?
In a manufacturing setting, "the best short-term profit maximization approach is to maximize contribution unit times the number of units sold." Discuss the truthfulness of the statement and show by way of examples how you would set about demonstrating the accuracy of such a statement.
the link between short-run average costs and long-run average costs? Explain the association between return to scale and economies of scale and suggest the potential sources of internal and external economies of scale. Why might firms face diseconomies of scale and shutdown/break-even situations in the long run?