COST ACCOUNTING
COST BEHAVIORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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many fixed costs are only fixed over a certain range of output
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variable cost per unit falls as out rises
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direct costs are generally variable
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fixed cost per unit rises as output rises
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Detailed explanation-1: -Fixed costs do not vary with the production level. Total fixed costs remain the same, within the relevant range. However, the fixed cost per unit decreases as production increases, because the same fixed costs are spread over more units.
Detailed explanation-2: -A fixed cost is a cost that remains constant; it does not change with the output level of goods and services.
Detailed explanation-3: -Whatever amount of output the firm produces, this cost remains fixed for the firm. TFC continues to exist even when production is stopped in the short run as well as in the long run. Hence, correct answer is option B.
Detailed explanation-4: -Definition of Fixed Cost per Unit Fixed costs such as rent, salaries, depreciation, etc. generally do not change in total within a reasonable range of volume or activity. On the other hand, the fixed cost per unit will change as volume or the level of activity changes.