A leased factory building has a fixed monthly rental payment, and a variable overhead cost of energy and indirect labour. Which of the following is TRUE, assuming that all activity levels are within the relevant range?
A) Variable OVH costs will increase as production increases, but Fixed OVH costs will decrease.
B) Variable OVH costs will decrease as production increases, but Fixed OVH costs will increase.
C) Variable OVH costs will increase as production increases, and Fixed OVH costs will increase.
D) Variable OVH costs will increase as production increases, but Fixed OVH costs will remain constant.
E) Both will increase with production, but at different rates.

Question

Quizplus · Accepted Answer

Variable overhead costs, such as energy and indirect labor, increase with production levels, while fixed costs, like monthly rental payments, remain constant regardless of production levels within the relevant range.

A Leased Factory Building Has a Fixed Monthly Rental Payment