CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting
A Pune-based auto-component manufacturer notes that its factory rent, a cost that stays the same in total whether it makes 2,000 or 6,000 units a month, falls per unit as production rises. How does this cost behave per unit and in total?
Factory rent is fixed in total and variable per unit. The total stays unchanged within the relevant range of output, but the rent spread over each unit falls as production rises, so the per-unit figure changes inversely with volume.
- AFixed in total and variable per unitCorrect
- BVariable in total and fixed per unit
- CFixed in total and fixed per unit
- DVariable in total and variable per unit
Explanation
Fixed cost stays constant in total over the relevant range, so the cost per unit falls as output rises. Hence it is fixed in total and variable per unit. Option B reverses the behaviour, which describes a variable cost.
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