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CA Intermediate · Cost and Management Accounting · Introduction to Cost and Management Accounting

Which of the following is a standard cost classification of expenses by their behaviour, where the total cost remains unchanged within a relevant range of activity although the cost per unit falls as output rises?

Fixed cost is the correct answer. Within the relevant range of activity, the total fixed cost does not change with output, so the cost per unit declines as more units are produced. Variable costs behave the opposite way, with constant unit cost and changing total cost.

  1. AVariable cost
  2. BFixed costCorrect
  3. CSemi-variable cost
  4. DStep-variable cost

Explanation

A fixed cost stays constant in total within the relevant range and therefore its per-unit amount falls as volume increases. Variable cost stays constant per unit while total changes. Semi-variable cost has both fixed and variable parts, so its total changes with activity.

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