Question

Cost A is a fixed cost, while B is a variable cost. During the current year, the volume of output has decreased. In terms of cost per unit of output, we would expect that:

A. cost A has remained unchanged.
B. cost B has decreased.
C. cost A has decreased.
D. cost B has remained unchanged.

Answer 1

Fixed costs per unit (cost A) remain unchanged when output decreases, while variable costs per unit (cost B) decrease with reduced output.

Step-by-step explanation:

In a scenario where the volume of output has decreased, we would expect that cost A, which is a fixed cost, would remain unchanged per unit of output because fixed costs do not vary with the level of production.

On the other hand, cost B, representing a variable cost, would decrease with the reduction in output, as variable costs are directly associated with the amount of output produced and include factors such as labor and raw materials.

In terms of cost per unit of output, when the volume of output decreases, we would expect cost A to remain unchanged.

This is because cost A is a fixed cost, which means it does not depend on the level of output. On the other hand, cost B is a variable cost, meaning it changes with the volume of output. Therefore, cost B may have decreased due to the decrease in output.