Question

_____ per unit increases or decreases in inverse proportion to its activity level.

a.Contribution cost

b.Fixed cost

c.Opportunity cost

d.Variable cost

Answer 1

b.Fixed cost

Explanation : Total fixed cost remains constant but fixed cost per unit changes with activity level Fixed cost per unit & output level has inverse proportional relationship .

Suppose Total Fixed cost is $10,000 , now if activity level is 5,000 units than fixed cost per unit is $2 per unit ($10,000 / 5,000 units). If activity level is 10,000 units than fixed cost per unit is $1 per unit ($10,000 / 10,000 units). If activity level is 1,000 units than fixed cost per unit is $10 per unit ($10,000 / 10,000 units).

Thus as the activity level increase than fixed cost per unit decreases or vice versa.