When the activity level is expected to increase within the relevant range, what effects would be...

Question:

When the activity level is expected to increase within the relevant range, what effects would be anticipated with respect to each of the following?

a) Fixed costs per unit decrease and variable costs in total decrease

b) Fixed costs per unit decrease and variable costs in total increase

c) Fixed costs per unit increase and variable costs in total increase

d) Fixed costs per unit stay the same and variable costs in total increase

Costs and Changes in Activity:

Fixed costs are costs that are unaffected by the number of units produced by an entity, as long as the number of units is within the existing capacity. Variable costs change proportionately with changes in the level of output.

Answer and Explanation:

b)Fixed Costs per unit decrease and variable costs in total increase.

The total variable costs increase because an increase in output means the variable costs such as material will also increase. The fixed costs PER UNIT however will decrease because the cost itself (such as rent) remains constant but the units increased.


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Variable Costing: Method, Formula & Advantages

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