If electricity charges are increased for commercial use from Rs. 8 per unit to Rs. 8.50 per unit, this would affect ________.a.Fixed Costb.Variable Costc.Both Fixed and Variable Costd.Neither Fixed Cost no Variable Cost
Question
If electricity charges are increased for commercial use from Rs. 8 per unit to Rs. 8.50 per unit, this would affect ________.a.Fixed Costb.Variable Costc.Both Fixed and Variable Costd.Neither Fixed Cost no Variable Cost
Solution
The answer is b. Variable Cost.
Here's why:
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Fixed costs are costs that do not change with the level of output or sales. They are incurred regardless of whether a business is making a product or providing a service. Examples include rent, salaries, and insurance. In this case, the cost of electricity is not a fixed cost because it does not remain the same regardless of the level of output or sales.
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Variable costs, on the other hand, are costs that change in direct proportion to the level of sales or production. They rise as production increases and fall as production decreases. Examples include direct materials, direct labor, and other direct costs. In this case, the cost of electricity is a variable cost because it changes with the level of output or sales.
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Therefore, if the price of electricity increases from Rs. 8 per unit to Rs. 8.50 per unit, it would affect the variable cost because the cost of electricity is a variable cost. It would not affect the fixed cost because the cost of electricity is not a fixed cost.
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So, the correct answer is b. Variable Cost.
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