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CMA Foundation · Fundamentals of Financial and Cost Accounting · Classification of Costs (CAS 1)

Which of the following best describes the behaviour of total fixed cost and fixed cost per unit when the activity level rises within the relevant range?

Total fixed cost stays constant within the relevant range as activity rises, while fixed cost per unit falls because the same total is spread over more units. Constant per-unit cost is a feature of variable cost, not fixed cost.

  1. ATotal fixed cost remains constant; fixed cost per unit fallsCorrect
  2. BTotal fixed cost rises; fixed cost per unit remains constant
  3. CTotal fixed cost falls; fixed cost per unit rises
  4. DTotal fixed cost remains constant; fixed cost per unit also remains constant

Explanation

Within the relevant range, total fixed cost does not change with volume. Since the same total is spread over more units, the per-unit fixed cost falls. The option stating per-unit cost is constant describes variable cost behaviour.

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