Commercial Applications
Fixed cost per unit decreases when ……………
- Production volume increases
- Production volume decreases
- Variable cost per unit decreases
- Variable cost per unit increases
Answer
Production volume increases
Reason — Total fixed cost remains constant in amount irrespective of changes in output (within the relevant range). When production volume increases, this constant fixed cost is spread over a larger number of units, so the fixed cost per unit decreases. For example, if total fixed cost is ₹1,50,000, then at 30,000 units the fixed cost per unit is ₹5, but at 60,000 units it falls to ₹2.50.
Related Questions
In element-wise classification of overheads, which one of the following is not included in?
- Fixed overheads
- Indirect labour
- Indirect materials
- Indirect expenditure
Match the following types of costs with their correct examples:
Types of Cost Examples (a) Direct Material 1. Wages paid to quality inspectors (b) Indirect Labour 2. Cloth used in dress making (c) Indirect Material 3. Nails used in carpentry work (d) Direct Labour 4. Salary of a factory manager - a-2, b-4, c-3, d-1
- a-3, b-1, c-2, d-4
- a-4, b-3, c-2, d-1
- a-1, b-2, c-3, d-4
…………… means amount spent on production or to provide services.
- Cost
- Profit
- Revenue
- Expenditure
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.