Question

Which of the following is a true statement about total fixed costs and total contribution margin?

1) Total fixed costs decrease as production volume increases.
2) Total fixed costs are not affected by changes in production volume.
3) Total contribution margin decreases as production volume increases.
4) Total contribution margin is not affected by changes in production volume.

Answer 1

Option 2) Total fixed costs are not affected by changes in production volume.

Step-by-step explanation:

The answer to the question is option 2) Total fixed costs are not affected by changes in production volume. In business economics, fixed costs are those costs that do not change regardless of the level of production. These costs include rent, insurance, and salaries, among others. Since fixed costs do not vary with changes in production volume, the total fixed costs remain the same.

On the other hand, the contribution margin is the difference between total sales revenue and total variable costs. It is a measure of the profitability of each unit of product sold. The contribution margin is affected by changes in production volume. As production volume increases, the total contribution margin also increases.