Test Questions

1.	All of the following business costs will usually be classified as direct costs except:
A.	Business rates
B.	Raw materials
C.	Production workers wages
D.	Depreciation
2.	Depreciation as a business cost is
A.	A fall in the value of foreign currency holdings
B.	A fall in the value current assets
C.	A fall in the value of stocks held
D.	A fall in the value of fixed assets
3.	Which of the following is not an indirect cost to business?
A.	The purchase of photocopying paper
B.	Allowances for the depreciation of machinery
C.	Office heating bills
D.	After sales care
	Questions 4 – 6 share the following answer options:
A.	Passenger mile
B.	Call unit
C.	Labour hour
D.	Barrel
	Which of the above cost units will be used by the producers for the following goods and services to compare unit costs and revenues?
4.	Oil
5.	Piano lessons
6.	Coach travel
7.	Which of the following costs is likely to vary with the level of output in a firm?
A.	Rent
B.	Overheads
C.	Component parts
D.	Insurance
8.	What annual depreciation charge would you advise a firm to use against a machine that cost £5,000 and lasts 10 years?
	A. 0		B. £1,000		C. £500			D. £50
9.	Which of the following cost items are unlikely to vary with the level of output on a farm?
	A. Seeds	B. Petrol for a tractor				C. Business rates				D. Fertiliser
10.	A firm wants to expand production by 10,000 units over current levels of output. To do this it will need to hire additional machinery at a cost of 5,000 pounds per year. If the cost of labour and materials to produce each unit of production is 3 pounds, what is the marginal cost of each additional unit?
	A. 70 pence			B. £3.50			C. £7		D. £3
	Questions 11 – 14 are based on the following information: ABC Ltd has calculated that its fixed costs are £10,000 per month. Variable costs are £2 per unit produced.
11.	What is the total cost of producing 5,000 units each month?
	A. £12,000			B. £200,000			C. £10,000		D. £20,000
12.	What is the average cost of producing each unit of the total output of 5,000 units per month?
	A. £4			B. £2			C. £40		D. £20
13.	If ABC Ltd wanted to earn a profit of £10,000 on the production and sale of 5,000 units per month, what price per unit should they charge?
	A. 60 pence			B. £60			C. £2		D. £6
14.	List three cost items in a computer assembly plant that could be classified as: (a) direct costs (b) indirect costs Why are some cost items referred to as ‘fixed’? Explain what is meant by the marginal cost of production. Why is information on marginal cost of production is useful to a firm investigating possibilities for expansion? What is depreciation? Explain using examples.