Question

Describe how total fixed costs and unit fixed costs behave with changes in the level of activity?

Total fixed cost remains the same in dollar amount regardless of activity level. For fixed cost as the activity level decreases the unit level increases and as the activity level increases the unit level decreases

Answer 1

Total fixed cost remains fixed at any level of activity as it is fixed in nature and do not vary with the increase or decrease in level of activity. However the unit fixed cost vary with the level of activity because the total fixed cost remains the same and level of activity changes.

So the unit fixed cost decreases as the level of activity increases as now the Total cost will be allocated to more units and hence will decrease the per unit fixed cost. On the other hand unit fixed cost increases as the level of activity decreases because now the total cost will be allocated to lower units and hence will increase the per unit fixed cost.

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