Question

With respect to variable costs per unit, which of the following statements is true?

1) Variable costs per unit increase as production volume increases
2) Variable costs per unit decrease as production volume increases
3) Variable costs per unit remain constant regardless of production volume
4) Variable costs per unit are not affected by production volume

Answer 1

Variable costs per unit remain constant regardless of production volume. As production increases, total variable costs grow due to more inputs being used, but the cost per unit stays the same.

Step-by-step explanation:

The statement that is true with respect to variable costs per unit is that they remain constant regardless of production volume. This is because variable costs, such as labor and raw materials, change in total based on the output level, but the cost per unit of production stays the same. If you produce more, total variable costs increase because you use more materials and labor, but the cost for each additional unit does not change.

For example, if it costs $2 in raw materials and labor to produce one widget, producing 100 widgets will cost $200 in total variable costs. If you increase the production to 200 widgets, the total variable costs double to $400, but the cost per widget remains at $2. Thus, as production volume increases, the variable cost per unit does not increase or decrease; it remains constant.