In: Accounting
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
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