Commercial Applications
Assertion (A): Fixed costs per unit remain constant as production volume increases.
Reason (R): Fixed costs are not dependent on the level of production.
Which of the following is correct?
- Both A and R are true, and R explains A.
- Both A and R are true, but R does not explain A.
- A is true, but R is false.
- A is false, but R is true.
Cost
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Answer
A is false, but R is true.
Reason — The Assertion is FALSE because fixed costs per unit do not remain constant — they actually decrease as production volume increases (because the same total fixed cost is spread over more units). Fixed costs are constant in total, but vary per unit. The Reason is TRUE because total fixed costs are not dependent on the level of production within the relevant range; they remain unchanged whether output is 1 unit or 1,00,000 units.
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Related Questions
Fixed cost per unit decreases when ……………
- Production volume increases
- Production volume decreases
- Variable cost per unit decreases
- Variable cost per unit increases
…………… means amount spent on production or to provide services.
- Cost
- Profit
- Revenue
- Expenditure
Indirect costs can be directly traced to a specific cost object, such as a product or department.
- True
- False
What describes variable costs in terms of cost behaviour?
(1) They stay constant regardless of changes in activity. (2) They change proportionally with changes in activity levels. (3) They include both direct and indirect components. (4) They are fixed in nature.
- 1 & 2
- 3 & 4
- Only 1
- 2 & 3