manufacturer plans to increase production within the relevan

manufacturer plans to increase production within the relevant range of activity. What behaviour can the compan expect for each of the following? Fixed cost per unit Variable cost per unit D No change D Increase Decrease O Decrease Increase Nd change Increase No change QUESTION 2 Which of the following would usually be considered a discretionary fixed cost for a soft drink bottling company? the cost of advertising its products O the cost of fire insurance on its factory building o depreciation on its manufacturing equipment both a and b above

Solution

(1)If the level of activity increases within the relevant range then the fixed cost per unit will decrease.

If level of activity increases with in the relevant range then the variable cost per unit will be unaffected

Hence last option is correct i.e. FC pu = Decrease & VC pu = No change

(2)A discretionary fixed cost is one that is a required expenditure for only a specific period of time or an asset that is occasionally an unnecessary expense, but a necessity at other times. In most cases, discretionary fixed costs can be eliminated

In this case first option is correct i.e cost of advertising its product