Question

In: Accounting

Fixed costs: [[selectone]] a. vary with production or sales volumes b. include parts and materials used...

Fixed costs:

[[selectone]]

a. vary with production or sales volumes

b. include parts and materials used to manufacture a product

c. can be adjusted in the short run to meet actual demands

d. the cost per unit decreases with the increase of production volume

Solutions

Expert Solution

ANSWER: OPTION D

The cost per unit decrease with increase of production volume

Reason:

The fixed cost is the cost which will not be vary with the changes in production volume or sale volume.

Eg ; Rent

Rent is a type of fixed cost, irrespective of the Production volume/sale volume entity has to pay rent on monthly basis.

The Amount of rent will not vary with the changes of production or sale volume.

*The Material or spare parts cost will vary with production volume , Hence these would be categrized as fixed cost only

* it can not be adjusted in the short run to meet actual demands

*The fixed cost per unit will be reduce when volume incresed and Fixed cost per unit will decrese when production or sale volume decrese

Example; Rent amount per month : $5000

Unit produced per month:2500

Rent (fixed cost) per unit : $2 per unit (Amount of fixed cost/units)

Scenario 2

Rent amount per month : $5000

Unit produced per month:5000

Rent (fixed cost) per unit : $1 per unit (Amount of fixed cost/units)

So its clear from the above examle that fixed cost per unit will be decrease when production volume increases

ekkarill92 answered 2 years ago
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