Question

LO 2.2Which of the following statements is true regarding average fixed costs?

Average fixed costs per unit remain fixed regardless of level of activity.
Average fixed costs per unit rise as the level of activity rises.
Average fixed costs per unit fall as the level of activity rises.
Average fixed costs per unit cannot be determined.

Answer 1

The statements is true regarding average fixed costs:

Average fixed costs per unit fall as the level of activity rises.

Step-by-step explanation:

Average fixed costs per unit can be determined by using the following formula:

Average fixed costs per unit = Fixed costs/ number of units are produced

In the company, Fixed costs do not depend on the level of activity (Fixed costs do not change).

The number of units are produced increase if level of activity rises. Therefore, Average fixed costs per unit fall as the level of activity rises