A cost which remains constant per unit at various levels of activity is a

A cost which remains constant per unit at various levels of activity is a

A variable cost.
B fixed cost.
C mixed cost.
D manufacturing cost.

Answer

General guidance

Concepts and reason
There can be different costs such as fixed costs, mixed costs, variable costs and manufacturing costs. Purpose of understanding of different costs: When different costs are understood properly, it helps to make the production process a cost effective. Apart from that, it helps to determine the breakeven point, beyond of which a profit is created.

Fundamentals

In the process of manufacturing of goods, different types of costs such as fixed costs, mixed costs, variable costs etc. can occur. Fixed costs: Fixed costs are the costs of machines, infrastructure, salaries etc. Fixed costs do not change with the levels of activity, produced. Total fixed costs remain the same for 10 units or for 100 units. Per unit fixed cost is total fixed cost divided by the level of output produced. So, per unit fixed cost becomes less if more output level is produced. Variable costs: Total variable costs change with the level of outputs. For example, the wages of labor involved in production depends on the level of output produced. Per unit variable cost is fixed. Total variable cost is calculated by multiplying per unit variable cost by the level of output produced. Mixed costs: The combination of variable cost and fixed cost makes up the mixed costs. Mixed costs is calculated by summing up total variable costs and total fixed costs for the given level of output. Then, per unit mixed cost is determined by dividing total mixed costs divided by the levels of output produced. Manufacturing costs: Manufacturing costs include cost of direct material used, cost of labor used and the overhead costs. Overhead costs are the costs of facilities, provided for manufacturing. Overhead costs decrease with increase in output level. Per unit manufacturing cost is total manufacturing cost divided by the levels of output manufactured.

Step-by-step

Step 1 of 2

A cost which does not remain constant per unit at various levels of activity is a • Fixed cost • Mixed cost and • Manufacturing cost

As explained above, total fixed costs are not determined by the level of output. In fact, total fixed costs remain constant at various level of output. Per unit fixed cost is calculated as shown below. Hence, being the numerator constant, per unit fixed cost decreases with increase in the output level produced. So, option ‘B’ is incorrect. As stated above, mixed costs include both fixed cost and variable cost. So, total mixed cost is the sum of total variable cost (to be calculated for the given level of output) and total fixed costs. Per unit mixed cost depends on the output level. So, option ‘C’ is incorrect. The overhead cost decreases with increase in output level and vice-versa. Due to this overhead cost, per unit manufacturing cost does not remain constant at various levels of activity. So, option ‘D’ is incorrect.

Step 2 of 2

A cost which remain constant per unit at various levels of activity is a variable cost.

Per unit variable cost does not rely on the level of activity. So, option ‘A’ is correct.

A cost which remain constant per unit at various levels of activity is a variable cost.


Total variable costs depend on the output level produced. Total variable cost is calculated by multiplying per unit variable cost with the levels of output produced. Per unit variable cost remain constant for any level of output.

Answer

A cost which remain constant per unit at various levels of activity is a variable cost.

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