Mosely Company's per-unit cost is the same at all levels of activity. The company's cost structure must have all:
Question
Mosely Company's per-unit cost is the same at all levels of activity. The company's cost structure must have all:
Solution
The statement implies that Mosely Company's cost structure must be entirely variable. Here's why:
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In cost accounting, costs are typically classified as either fixed or variable. Fixed costs do not change with the level of production or business activity, while variable costs change in direct proportion to the level of production or business activity.
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If Mosely Company's per-unit cost is the same at all levels of activity, it means that the total cost changes in direct proportion to the level of activity. This is a characteristic of variable costs, not fixed costs.
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Therefore, if the per-unit cost remains constant regardless of the level of activity, it suggests that there are no fixed costs in Mosely Company's cost structure. All costs must be variable for this to be the case.
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In conclusion, Mosely Company's cost structure must consist entirely of variable costs.
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