Which of the following is a variable cost in the short run?

Rent of the factory.

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Wages paid to the factory labour.

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Interest payments on borrowed financial capital.

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Payment on the lease for factory equipment.

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Solution

The correct option is B Wages paid to the factory labour.
Wages paid to the factory labour are costs that are directly proportional to the level of production. If zero output is being produced then these costs do not have to be incurred. These costs vary with the level of output produced. Therefore, they are classified as variable costs. Fixed costs are indirect costs and have to be paid irrespective of the level of production. Even if zero output is being produced these costs have to be incurred. These costs include rent of the factory, interest payments on borrowed financial capital, payment on the lease for factory equipment.

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Q. Find out (a) explicit cost, and (b) implicit cost from the following:
(i) Investment in fixed assets
(ii) Borrowings at

12 %

interest per annum
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$\begin{matrix} Plants A & Plant B No. of workers & 5000 & 6000 Average monthly wages & R s .2500 & R s . 2500 Variance of distribution of wages & 81 & 100 \end{matrix}$

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The following results show the number of workers and the wages paid to them in two factories A and B.

$\begin{matrix} Factory & A & B Number of workers & 4000 & 5000 Mean wages & R s 3500 & R s 3500 Variance of distribution of wages & 64 & 81 \end{matrix}$

Which factory has more variation in wages?

The following table gives the wages of workers in a factory:

Calculate the mean by short cut method.

Q. Which standard cost variance represents the difference between actual factory overhead incurred and budgeted factory overhead based on actual direct labour hours worked?

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