COST ACCOUNTING
VARIABLE COSTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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It will have fixed costs, but not variable costs.
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It will have fixed costs and variable costs.
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It will have variable costs, but not fixed costs
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It will not have fixed costs or variable costs.
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None of the answers
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Detailed explanation-1: -Therefore, if the firm produces no output, the variable cost incurred becomes zero.
Detailed explanation-2: -Fixed costs are costs that are incurred even if no output is produced. Fixed costs do not depend on anything and are constant/fixed at every level. These are costs such as rent. Thus, the given statement is FALSE.
Detailed explanation-3: -In the short run, total cost is equal to zero when output is equal to zero. In the long run, total cost is equal to zero when output is equal to zero. Economic cost curves define the minimum economic costs of producing various levels of output.
Detailed explanation-4: -The negative aspect of fixed costs (also called continuing or ongoing costs) is: even if the firm produces nothing-e.g. because it is closed temporarily – the fixed costs have to be paid. Variable costs will change immediately when a company produces more, less, or nothing at all.
Detailed explanation-5: -If a firm decides to produce no output in the short run, its costs will be: Its fixed cost.