Thompson Company manufactures and sells cookware. Because of current trends, it expects to increase sales by 15% next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year’s total amounts for the following costs?

Variable Costs Fixed Costs Mixed Costs

Question

Thompson Company manufactures and sells cookware. Because of current trends, it expects to increase sales by 15% next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year’s total amounts for the following costs? Variable Costs Fixed Costs Mixed CostsSingle choice

A

increase increase increase

B

increase no change increase

C

no change no change increase

D

decrease increase increase

​

Variable Costs                 Fixed Costs                               Mixed Costs

BlackTom AI · Accepted Answer

Variable costs change in total with the level of production; fixed costs remain constant in total within the relevant range; mixed costs contain both a fixed portion and a variable portion, so their total will change when activity changes.

1. Relevant knowledge points and concepts
- Variable costs: total amount is directly proportional to activity (production/sales). A 15% increase in activity yields a 15% increase in total variable costs.
- Fixed costs: total amount does not change with activity within the relevant range (no plant expansion). Total fixed costs remain the same.
- Mixed costs: total = fixed portion + variable portion. Only the variable portion changes with activity, so total mixed cost increases, but by less than the percentage increase in activity.

2. Step-by-step reasoning
- Because sales and production increase by 15% and no expansion is needed, variable cost totals must rise by 15%, fixed cost totals stay constant, and mixed cost totals rise because their variable component rises.

3. Calculations with intermediate steps (example numbers)
Assume current totals:
- Variable costs = $1,000
- Fixed costs = $2,000
- Mixed costs = $1,000 composed of $400 fixed + $600 variable
Apply 15% increase in activity:
- New variable costs = $1,000 × 1.15 = $1,150 (increase of $150)
- New fixed costs = $2,000 × 1.00 = $2,000 (no change)
- New mixed costs variable portion = $600 × 1.15 = $690; total mixed = $400 + $690 = $1,090 (increase of $90)

4. Why the correct answer is correct
The variable cost total rose because it scales with output. Fixed costs stayed the same because the plant capacity and fixed obligations didn’t change. Mixed costs rose because their variable component rose while the fixed component remained constant.

5. Why other options are incorrect
- Options claiming fixed costs would increase are wrong because fixed costs do not change in total unless capacity/structure changes.
- Options claiming variable costs would not change (or would decrease) are wrong because variable costs move directly with activity.
- The option with all three increasing is wrong only for the fixed-cost part.

6. Conclusion
Therefore, the correct pattern is: Variable Costs — increase; Fixed Costs — no change; Mixed Costs — increase, which matches the provided answer.

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