Question

Fixed costs can be described by which of the following? Per unit cost changes inversely as...

  1. Fixed costs can be described by which of the following?
    1. Per unit cost changes inversely as activity changes
    2. Per unit cost remains constant as activity changes
    3. Its total changes proportionately as activity changes
    4. b & c
    5. a & c
Business   Accounting   
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Answer #1

Fixed cost remains fixed whatever be the activity of the production of the company is. This means that if the the level of activity increase is the total cost will be the same. Therefore the total cost of fixed cost will not change proportionately at the activity change.

Moreover as a cost will remain the same even with the activity level therefore per unit cost will decrease as the activity increases. Therefore per unit cost changes inversely as activity changes.

For example

Activity level 1 = 1,000

Activity level 2 = 2,000

Fixed cost = 5,000

Per unit at activity level 1 = 5,000/1, 000 = $ 5

Per unit at activity level 2 = 5,000/2, 000 = $2.5

Therefore the correct option is A

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