Which costs will change with a decrease in activity within the relevant range?Multiple ChoiceUnit fixed cost and total fixed costs.Unit variable cost and unit fixed cost.Total fixed costs and total variable costs.Unit fixed cost and total variable costs.
Question
Which costs will change with a decrease in activity within the relevant range?Multiple ChoiceUnit fixed cost and total fixed costs.Unit variable cost and unit fixed cost.Total fixed costs and total variable costs.Unit fixed cost and total variable costs.
Solution
The costs that will change with a decrease in activity within the relevant range are Unit fixed cost and total variable costs.
Here's why:
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Unit fixed cost: This cost will change because it is calculated as total fixed costs divided by the number of units produced. If activity decreases, fewer units are produced, which increases the unit fixed cost.
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Total variable costs: These costs change directly with the level of production. If activity decreases, total variable costs will decrease as well because fewer units are being produced.
On the other hand, total fixed costs will not change with a decrease in activity within the relevant range because these costs are incurred regardless of the level of production. Similarly, unit variable cost will not change because it is determined per unit of production, not by the total level of production.
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