Which of the following statements concerning variable costs is (are) correct?
I. Variable costs minus fixed costs equal marginal costs.
II. Variable costs are equal to zero when production is equal to zero.
III. An increase in variable costs increases the operating cash flow.
A) II only
B) III only
C) I and III only
D) II and III only
E) I and II only

Question

Quizplus · Accepted Answer

Variable costs are costs that vary with the level of output. When production is zero, variable costs are also zero, making statement II correct. Statement I is incorrect because marginal costs are the change in total costs due to a one-unit change in production, not simply variable costs minus fixed costs. Statement III is incorrect because an increase in variable costs would typically decrease operating cash flow, not increase it.

Which of the Following Statements Concerning Variable Costs Is (Are)