Last year Wesson Company sold 10000 units of its only produc

Last year, Wesson Company sold 10,000 units of its only product. If sales decrease by 15% in the current year, how will unit variable cost and unit fixed cost be affected? Unit Variable Cost Unit Fixed Cost A) Remains constant Remains constant B) Increases C) Decreases D) Remains constant Decreases E) Remains constant Increases Decreases Remains constant

Solution

Answer E. Unit Variable Cost - Remains Constant ; Unit Fixed Cost - Increases Variable Costs - a costs that varies with the level of output. Variable costs are directly dependent on the number of units manufactured, for example direct material and labor costs. Variable Costs vary with level of output or number of units, the total amount of variable costs will increase or decrease, but variable cost per unit will remain constant. Fixed Cost are those costs that will remain constant at a relevant range of production. For Example, office rent or property tax etc. They will not vary with the level of production, they will remain constant of remain same. IF the production decerases, than the fixed cost per unit will increase.