Question

show the fixed cost are fixed in total but is variable on a per unit basis and that variable in total but is fixed on a per unit basis

Answer 1

Show the fixed cost are fixed in total but is variable on a per unit basis and that variable in total but is fixed on a per unit basis?

Answer: True, Fixed costs are fixed in total but is variable on a per unit basis. Whereas the variable cost is fixed on a per unit basis but variable in total.

For Example, If we want to produce 10,000 units with the following cost – Variable costs like direct & indirect material, labor & overheads, etc. as 25, 46, 32. And fixed costs like rent, office maintenance, machinery rent capacity of producing 20,000 units, etc. as 20,000, 16,000, 7,500.

In this the total fixed costs will remain same until the maximum production of the machine i.e 33,500, but as per unit for 10,000 it will be 3.35 & for 15,000 it will be 2.23 and for 20,000 it will be 1.675.

But the variable costs per unit will be same but in total, for 10,000 units it will be 1,030,000 and for 15,000 it will be 1,545,000 and for 20,000 it will be 2,060,000.

So, Fixed costs will remain same i.e fixed in total but variable on a per unit basis, in the same variable costs will remain same i.e fixed on per unit basis and variable in total.