ACCA Applied Knowledge · Business and Technology · Microeconomic factors
A rented factory costs Kestrel Ltd 120,000 per year however many units it makes. Variable cost is 5 per unit. Output rises from 10,000 to 20,000 units. How does the fixed cost per unit change?
Fixed cost per unit falls from 12 to 6. Total fixed cost of 120,000 is divided by 10,000 units and then by 20,000 units. The 17 and 11 options wrongly include variable cost, and fixed cost per unit does not remain constant when output changes.
- AIt falls from 12 to 6Correct
- BIt falls from 17 to 11
- CIt stays at 12
Explanation
Fixed cost per unit is 120,000/10,000 = 12 at first and 120,000/20,000 = 6 after. The figures 17 and 11 are total unit costs including the 5 variable cost, not fixed cost per unit. Fixed cost per unit does not stay constant, because total fixed cost is spread over more units.
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