Question

As activity level increases, fixed cost per unit ______

Answer 1

Ans: As activity level increases, fixed cost per unit Decreases.

Explanation:

1) Lets' understend the above statement with an example.

2) Suppose for X Company fixed manufacturing overhead is $ 300,000 when 5000 units are produced.

( company's capacity is 10,000 unit i.e evenif company increases its production upto 10,000 units fixed cost would remain same i.e. $ 300,000)

3) Now, if company increases the production to 6000 unit fixed cost per unit will decreases.

	Cost Per Unit
When 5000 Units are produced ( $300,000÷5000)	$60 Per Unit
When 6000 Units are produced ( $300,000 ÷6000)	$50 per Unit

4) We can conclude from the above table,

As the activity leval increases, fixed cost per unit goes down.