XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?
A)Total manufacturing costs will increase and unit manufacturing costs will stay the same.
B)Total manufacturing costs will increase and unit manufacturing costs will decrease.
C)Total manufacturing costs will stay the same and unit manufacturing costs will stay the same.
D)Total manufacturing costs will stay the same and unit manufacturing costs will decrease.

Question

Quizplus · Accepted Answer

Total manufacturing costs will increase because XIAN is producing more valves. Unit manufacturing costs will decrease because the fixed costs are spread over a larger number of units.

XIAN Manufacturing Produces a Unique Valve, and Has the Capacity