Question

Monaco Company has a variable cost.  At the production level of 10 units, the amount of the cost is $30. If the production level increases to 12 units or by 20%,

	A.	per-unit cost will increase by become 20%.
	B.	total cost will increase by 20%
	C.	total cost will become $32.
	D.	total cost will increase by $20.

Answer 1

B) "Total cost will increase by 20%" is the correct alternative.

Explanation :

Here, The production cost is variable in nature. As per the nature of variable cost, with the increase in production units , average variable cost remain same but total variable cost increases proportionally . So, if production level increases by 20% then total variable cost of production will also increases by 20% and vise versa .

Why the rest of the options are not correct :

A) As the production cost is purely variable in nature, the per unit  production cost never changes with the alteration of production units .

C) Total cost became = $ 30 + [ $ 30 X 20%] = $ 36

D) Total cost will increase by = $ 30 X 50% = $ 6 only.

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