Which of the following increases as volume of activity decreases?
A) Fixed cost per unit
B) Variable cost per unit
C) Total fixed cost
D) Total variable cost

Question

Quizplus · Accepted Answer

As volume of activity decreases, the fixed cost per unit increases. This is because fixed costs such as rent, salaries, and insurance are spread over less units of production, hence increasing the fixed cost per unit. Variable costs, on the other hand, increase as volume of activity increases because more materials and labor are required to produce more units, resulting in a higher variable cost per unit. Total fixed cost remains constant regardless of changes in volume of activity, while total variable cost increases with an increase in volume of activity.

Which of the Following Increases as Volume of Activity Decreases