Which costs will change with a decrease in activity?
A)Total fixed costs and total variable costs.
B)Unit fixed cost and total variable costs.
C)Unit variable cost and unit fixed cost.
D)Unit fixed cost and total fixed cost.
E)Unit variable cost and fixed manufacturing overhead.

Question

Quizplus · Accepted Answer

Total fixed costs remain constant regardless of the level of activity, so they do not change with a decrease in activity. Meanwhile, unit fixed costs are fixed in the short term but can be adjusted in the long term. If activity decreases, fixed costs are spread over a lower number of units, causing unit fixed costs to increase. On the other hand, total variable costs change in direct proportion to activity levels, while unit variable costs remain constant. Therefore, the only costs that change with a decrease in activity are unit fixed costs and total variable costs.

Which Costs Will Change with a Decrease in Activity