Practice Questions
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Which of the following best describes how fixed costs impact operational efficiency in a business?
Fixed costs stay the same no matter how much a business produces. Other options are incorrect because This answer suggests that fixed costs help lower...
How do fixed costs influence a firm's decision to expand production in the context of economies of scale and marginal cost?
When fixed costs are high, they can increase the cost of making each extra item, called marginal cost. Other options are incorrect because Some people...
A company has fixed costs of $10,000 and sells its product for $50 each with a variable cost of $30. What is the break-even point in units, and how does the contribution margin affect pricing decisions?
To find the break-even point, we need to cover fixed costs. Other options are incorrect because This answer misunderstands how to calculate the break-...
In the context of financial forecasting, how do fixed costs impact the calculation of contribution margin when evaluating business decisions?
Contribution margin focuses on how much money is left after covering variable costs. Other options are incorrect because This answer suggests that fix...
In the context of a manufacturing firm, if fixed costs represent a significant portion of the total cost structure, how might this influence the decision-making process regarding pricing and production levels?
When fixed costs are high, making more products helps spread those costs out. Other options are incorrect because Some might think that high fixed cos...
Which of the following is an example of a fixed cost in a business?
Fixed costs stay the same no matter what. Other options are incorrect because Some might think all costs are fixed; It's easy to confuse these with fi...
Which of the following best describes fixed costs in relation to variable costs?
Fixed costs stay the same no matter how much you produce. Other options are incorrect because This answer suggests fixed costs change, which is not tr...
Which of the following best describes the impact of fixed costs on a company's overall cost structure?
Fixed costs do not change when a company makes more or less of a product. Other options are incorrect because This answer suggests that fixed costs ch...
Which of the following statements accurately describe the role of fixed costs in business decision-making? (Select all that apply)
Other options are incorrect because Some people think fixed costs change with production levels; It's a common mistake to think fixed costs help decid...
If a business's fixed costs are $220,000 and it generates $250,000 in revenue, what should it consider when deciding whether to operate or shut down?
The business should keep running since it makes more money than it spends on fixed costs. Other options are incorrect because Some might think high fi...
A local coffee shop has fixed costs of $15,000 per month. Last month, they made $10,000 in revenue. Which of the following best categorizes their decision-making scenario regarding whether to operate or shut down for the next month?
The coffee shop should keep operating. Other options are incorrect because Some might think they should stop because they can't pay all their fixed co...
In decision-making regarding whether to continue operations, businesses must consider their __________, which remain constant regardless of their level of production.
Fixed costs are expenses that do not change no matter how much a business produces. Other options are incorrect because Variable costs change with pro...
Arrange the following steps in the correct order to determine whether a business should continue operating or shut down based on fixed costs and revenues: A) Calculate total fixed costs. B) Compare total revenue with total costs. C) Analyze the potential for covering variable costs if operations continue. D) Make a decision based on whether losses can be minimized or profits maximized.
First, you need to know how much your fixed costs are. Other options are incorrect because This option suggests analyzing variable costs before compar...
A coffee shop has fixed costs of $5,000 per month, regardless of how many cups of coffee it sells. If the shop's revenue from selling coffee is $4,000 in a month, what should the owner consider when deciding whether to continue operating or shut down temporarily?
The owner should keep the shop open if the money made covers the costs that change with selling coffee. Other options are incorrect because This answe...
A restaurant incurs fixed costs of $50,000 annually. If it anticipates revenue of $40,000, what should it prioritize to minimize losses?
Continuing to operate helps the restaurant pay for costs that change with business, like food and staff. Other options are incorrect because Some migh...
Fixed costs are to a business decision as a sunk cost is to a:
A sunk cost is money already spent that can't be recovered. Other options are incorrect because This option confuses sunk costs with future choices; V...
If a business decides to continue operating despite incurring fixed costs that exceed its revenue, what underlying reason might be driving this decision?
The business might think that it will earn more money in the future. Other options are incorrect because This answer suggests that the business thinks...
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