Why does the unit selling price increase when expected volume is lower than budgeted volume?
A) Variable costs and fixed costs have to be spread over fewer units.
B) Fixed costs and desired ROI have to be spread over fewer units.
C) Variable costs and desired ROI have to be spread over fewer units.
D) Fixed costs only have to be spread over fewer units.

Question

Quizplus · Accepted Answer

Fixed costs and desired ROI (Return on Investment) do not change with the volume of units produced or sold. Therefore, when the expected volume is lower than the budgeted volume, these costs have to be spread over fewer units, resulting in a higher unit selling price to cover the unchanged total fixed costs and achieve the desired ROI. Variable costs, on the other hand, change with the volume and thus do not directly cause the unit selling price to increase under these circumstances.

Why Does the Unit Selling Price Increase When Expected Volume