Commercial Applications
Variable cost per unit increases when ……………
- Volume of production decreases
- Volume of production increases
- Cost of raw material decreases
- Tax decreases
Cost
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Answer
Volume of production decreases
Reason — Theoretically, variable cost per unit remains constant. However, in practice, when the volume of production decreases significantly, the firm may lose the benefits of bulk purchase discounts, economies of scale and efficient labour utilisation, which can cause the variable cost per unit to increase. The other options (volume increase, raw material cost decrease, tax decrease) would all tend to decrease variable cost per unit, not increase it.
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