Asked by Taniya Banks on Jun 09, 2024
Verified
Fixed costs:
A) vary directly with changes in activity level.
B) in total remain unchanged as activity levels change.
C) vary on a per unit basis.
D) B and C
Fixed Costs
Overheads that stay the same no matter the quantity of goods produced or sold, like rent, salaries, and insurance.
Activity Level
A measure of the volume of work or production capability, often used in cost accounting to determine appropriate cost allocations.
- Describe how activity levels affect cost characteristics, highlighting the connection between the amount of production and the variability and fixity of costs.
Verified Answer
EN
Eduardo NievesJun 15, 2024
Final Answer :
D
Explanation :
Fixed costs in total remain unchanged as activity levels change, but they vary on a per unit basis. As production increases, the fixed cost per unit decreases because the total fixed costs are spread over more units.
Learning Objectives
- Describe how activity levels affect cost characteristics, highlighting the connection between the amount of production and the variability and fixity of costs.