Question

Frisco Corporation is analyzing its fixed and variable costs within its current relevant range. As its cost driver activity changes within the relevant range, which of the following statements is/are correct?
I. As the cost driver level increases, total fixed cost remains unchanged
II. As the cost driver level increases, unit fixed cost increases
III. As the cost driver level decreases, unit variable cost decreases
a. I, II and III are correct
b. I and II only are correct
c. I only is correct
d. II and III only are correct

Answer 1

Answer:

The answer is "Option C".

Explanation:

The Unit variable expenses should remain unchanged, paying no attention to what the price operator is doing.  Both variable prices will remain constant, paying little attention to adjustments in the costing system, as adjustments in the costing system may not impact all fixed expenses.  

Although full fixed costs will remain constant, paying special heed to changes in the cost engine, group fixed costs will not. Unless the amount of a costing system increases, all operating rates will continue as before, however, the full number of items will increase as well as the operating unit price will reduce.