COST ACCOUNTING
INTRODUCTION TO COST ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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increases as output increases and decreases as output decreases
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increases as output increases and/or decreases
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remains constant no matter the level of output
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increases as output decreases and decreases as output increases
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Detailed explanation-1: -A variable cost is an expense that changes in proportion to production output or sales. When production or sales increase, variable costs increase; when production or sales decrease, variable costs decrease.
Detailed explanation-2: -The difference between total cost and total variable cost remains constant as output is increased.
Detailed explanation-3: -As the output increases, variable cost also increases. This is because variable costs are largely the costs of raw material.
Detailed explanation-4: -Average fixed cost is the fixed cost per unit of output. As the total number of units of the good produced increases, the average fixed cost decreases because the same amount of fixed costs is being spread over a larger number of units of output.
Detailed explanation-5: -As output rises, the difference between total cost and total variable cost tends to fall.