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

Select one:
a. Choice A
b. Choice B
c. Choice C
d. Choice D
e. Choice E

Answer 1

Answer:

Correct answer is D, Unit variable cost remains and unit fixed cost decrease

Explanation:

The relationship between sales volume and unit fixed cost is inverse. Which means, the larger the volume increase of sales, the smaller the unit cost fixed cost in the period. No matter how much is the increase in sales, the total fixed cost REMAINS, that is why it affects only on per unit cost. VARIABLE UNIT COST on the other hand, is constant and will never be affected on the increase in sales volume. The relationship between total variable cost and sales is directly proportional.