Question

Which of the following is not an example of a cost that varies in total as the number of units produced changes? a.direct materials cost b.wages of assembly worker c.electricity per KWH to operate factory equipment d.insurance premiums on factory building g

Answer 1

Answer:

The correct answer is letter "D": insurance premiums on factory building.

Explanation:

Manufacturing companies can have fixed costs, variable costs, and mixed costs. Fixed costs are those whose total costs do not vary when the production volume changes. Rent and insurance are examples of fixed costs.

Variable costs are those that fluctuate according to the changes in production levels. Direct costs materials and sales representatives' commissions are examples of variables costs. Mixed costs are a combination of fixed and variables costs.

Therefore, insurance premiums on a factory building is not an example of variable costs since it is a fixed cost.

Answer 2

Direct materials are fixed materials that need to be maintained in the business irrespective of the capacity of the capacity of production of the factory.

They are the initial materials e.g. raw  materials which are required for beginning the production in the factory.

• Direct materials are the materials required in the business to ensure smooth running of the factory .

• Direct costs of a factory are directly related to the operations i.e, without them the production wont happen.

• There will be zero changes to the costs of operation .

Hence ,  option A is correct that direct materials do not vary with changes in units produced.

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