Question

If an entity varies its level of activity:

Select one:

a. all costs will vary.

b. all costs will remain the same.

c. most costs will rise.

d. some costs will vary, others will remain the same.

Answer 1

Answer:

Option d: some costs will vary, others will remain the same.

Explanation:

When an entity increases or decreases its level of activity, some costs change with level of activity. Such costs are variable costs.

If activity level increases, variable costs also increase and vice-versa.

When an entity increases or decreases its level of activity, some costs do not change with level of activity. Such costs are fixed costs.

They remain constant at any level of activity.

Hence, option 'd' is correct and rest all are incorrect.

In case of any doubt, please feel free to comment.