Question 7
- Explain the following terms:
(i) variable cost;
(ii) fixed cost.
b. The schedule of expenditure of Abubakar Paint Ltd in the month of October 2016 for the production of 650 drums of paints is tabulated bellow.
Calculate :
- variable cost;
- fixed cost;
- total cost;
- average cost
Observation
Candidates who attempted the question performed well in part (a) of the question while their performance in part (b) was not good. This may be as a result of the fact that the (b) part of the question is calculation.
The responses expected from candidates are:
(a) (i) Variable cost is direct cost which changes in the short run with the scale of production
(ii) Fixed cost is the overhead cost. It remains constant in the short run no matter the level of output
(b) (i) Variable cost = cost of raw materials + cost of power
= N 405,500 + N 90,000
= N495,500
