Question

Last year, wesson company sold 10,000 units of its only product. if sales increase by 12% in the current year, how will unit variable cost and unit fixed cost be affected? unit variable cost unit fixed cost
a.remains constant remains constant
b.increases decreases
c.decreases remains constant
d.remains constant decreases
e.remains constant increases

Answer 1

Variable cost vary in direct proportion to business volume (quantity sold or quantity produced)

Fixed cost remain constant regardless of sales or manufacturing volume.

According to question if sales are increased by 1200 units.current year sale will be 11200 unit .

Suppose Wesson have a variable cost of $6 per unit and fixed cost of $1000.

Cost of 10000 units are :-

Variable cost is 60000(10000*6)

Fixed cost is 1000.

Cost of 11200 unit are :-

Variable cost is 67200(11200*6)

Fixed cost is 1000

So if sales are increased by 12%. Variable cost are increased by 12%(67200-60000). Fixed cost remain the same at 1000 regardless of sales increased

Therefore, 

Variable cost increases, Fixed cost remains constant. Answer is choice (e)

Answer 2

Variable cost increases with increasing number of units, and also decreases with decreasing number of units. Therefore the unit variable cost is constant.

 

Meanwhile, fixed  cost is not affected with the number of units produced. So the unit fixed cost is high when number of units is low, and low when number of units is high.

 

Answer:

d.remains constant decreases