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CMA Foundation · Fundamentals of Financial and Cost Accounting · Meaning and Significance of Cost Accounting and its Relationship with Financial Accounting

A Chennai firm pays ₹24,000 per month rent for a factory. Production is 4,000 units in April and 6,000 units in May. Which statement about rent per unit and total rent is correct?

Total rent stays at ₹24,000 while rent per unit falls from ₹6 to ₹4. Rent is a fixed cost, so the total is unchanged by output, but spreading it over 6,000 units instead of 4,000 reduces the cost per unit.

  1. ATotal rent rises in May; rent per unit stays ₹6
  2. BTotal rent stays ₹24,000; rent per unit falls from ₹6 to ₹4Correct
  3. CTotal rent stays ₹24,000; rent per unit rises from ₹4 to ₹6
  4. DTotal rent falls in May; rent per unit stays ₹4

Explanation

Rent is a fixed cost, so the total stays at ₹24,000. Per unit it is 24,000/4,000 = ₹6 in April and 24,000/6,000 = ₹4 in May. Per-unit fixed cost falls as volume rises, which the reversed option gets wrong.

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