COST ACCOUNTING
COST BEHAVIORS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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total variable costs decrease as production increases
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fixed costs per unit decreases as production decreases
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total fixed costs remain the same when production increases or decreases
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total variable costs remain the same when production increases or decreases
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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: -Fixed costs are costs that do not change when sales or production volumes increase or decrease. This is because they are not directly associated with manufacturing a product or delivering a service. As a result, fixed costs are considered to be indirect costs.
Detailed explanation-3: -Within the relevant range, total fixed costs remain the same. If the number of units changes (increase or decrease), the total fixed cost is spread across the changed units. So, the per-unit fixed cost will change/fluctuate.
Detailed explanation-4: -Answer and Explanation: It is false that as activity increases within the relevant range, fixed costs remain constant on a per-unit basis. Fixed costs are fixed in terms of what is expended on them regardless of volume, but looked at as per-unit costs, they will decrease within the relevant range as activity increases.
Detailed explanation-5: -As production increases, total variable costs increase at a decreasing rate, since the marginal product for each additional worker is increasing. With diminishing marginal product, the total variable cost increases at an increasing rate.