Amul Food Factory in India makes ice cream and produces processed and condensed milk. In the factory, the firm's employees use milk and sugar. The firm runs on electricity and purchases raw milk every day. Large robotic assembly lines fill and package the ice cream containers. Large industrial freezers store the ice cream. Which of the following are variable costs for Amul Food Factory?
(i) The cost of the raw milk purchased from farmers.
(ii) The cost of buying the robotic assembly lines.
(iii) The cost of buying electricity.
(iv) The cost of buying industrial freezers.
(v) The cost of sugar.

Question

Quizplus · Accepted Answer

(i), (iii), and (v) are variable costs because they change with the level of production. The cost of raw milk and sugar varies with the amount used, which depends on the quantity of ice cream produced. The cost of electricity also varies with production levels. In contrast, the cost of buying robotic assembly lines and industrial freezers are fixed costs, as they do not change with the level of production.

Amul Food Factory in India Makes Ice Cream and Produces