A cost is $50,000 when 25,000 units are produced, and $100,000 when 50,000 units are produced. This is an example of a(n)

Question

BlackTom AI · Accepted Answer

The problem presents cost behavior data and asks you to identify the type of cost represented. 
Option 1: variable cost. This choice aligns with the idea that total cost changes with the level of production, since costs rise from $50,000 at 25,000 units to $100,000 at 50,000 units, indicating a cost that varies with output.
Option 2: fixed cost. A fixed cost remains constant regardless of output in the relevant range; since the total cost doubles when output doubles, this option does not fit the observed pattern.
Option 3: direct cost. Direct costs are those that can be directly traced to a product, like direct materials or direct labor. The label here refers to traceability rather than how total cost behaves with volume, so it doesn’t explain the change in total cost with volume.
Option 4: indirect cost. Indirect costs (overheads) are allocated across products and are not necessarily tied to the activity level in a simple linear way. The data showing a clear increase with units produced points away from a purely indirect/overhead interpretation.
In this scenario, the essential insight is that the total cost increases as output increases, which is a hallmark of variable costs. The other options describe different cost concepts that do not match the observed cost behavior: fixed costs stay flat, while the notions of direct or indirect costs focus on traceability or allocation rather than the observed volume-related change.

A cost is $50,000 when 25,000 units are produced, and $100,000 when 50,000 units are produced. This is an example of a(n)

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