Question

Which ONE of the following statements is TRUE? A variable cost is variable in total and...

Which ONE of the following statements is TRUE?

A variable cost is variable in total and decreases per unit as the number of units increases.

A fixed cost is fixed in total and decreases per unit as the number of units increases.

A variable cost is fixed in total and decreases per unit as the number of units increases.

A variable cost is variable in total and increases per unit as the number of units increases.

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Homework Answers

Answer #1

A fixed cost is fixed in total and decreases per unit as the number of units increases. Is the correct answer.

Explanation

Fixed costs are those cost which are not vary with the change in the level of output.

For example - If the production is 100 units and the fixed cost is $10,000. Then the fixed cost per unit is ($10,000 / 100 units) $100.

If the production is increases to 125 units, the fixed cost is $10,000 (because it is change with the change in the level of output). Then the fixed cost per unit is ($10,000 / 125 units) $80.

It states that if the unit increases, then the fixed cost per unit decreases.

Variable cost is variable in total but variable cost per unit is fixed, it is not change with the change in the level of output.

Formula for variable cost = Variable cost per unit * Units

Only units are variable in nature but there is no relation between variable cost per unit and level of output.

So, other options are incorrect.

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