Question

If a predetermined overhead rate is not employed and the volume of production is increased over the level planned, the cost per unit would be expected to?

• A. Decrease for fixed costs and remain unchanged for variable costs.
• B. Remain unchanged for fixed costs and increase for variable costs.
• C. Decrease for fixed costs and increase for variable costs.
• D. Increase for fixed costs increase for variable costs.

Answer 1

The correct option is A Decrease for fixed costs and remain unchanged for variable costs.

Fixed cost and variables cost are just opposite to each other. Variable cost is fixed per unit and increases with the level of production in value while the fixed cost remains constant in value irrespective of the volume of production but decreases per unit with the increase in volume.