Final answer:
When the activity level decreases by 5%, the fixed costs remain constant in total because they do not vary with the production levels. On a per-unit basis, fixed costs would increase as they would be allocated over fewer units.
Step-by-step explanation:
If the activity level drops by 5%, one would expect the fixed costs to remain constant in total. Fixed costs are the costs that do not change with the level of production or activity. This means that even if production drops, the fixed costs incurred by a company will remain the same. However, on a per-unit basis, fixed costs would actually increase because the same total amount of fixed costs would be spread over a smaller number of units produced. It's important to differentiate between total fixed costs and per-unit fixed costs in this context. So, the correct answer is A. to remain constant in total, although D. to decrease per unit of product also provides an additional perspective on how these costs might be analyzed with a reduction in activity.