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13 July, 13:53

Which of the following is true ? A. The average cost per unit can be used for predicting total costs at many different output levels. B. Direct materials are considered to be fixed costs. C. Manufacturing overhead is composed of only variable costs. D. Fixed costs stay constant in total over a wide range of activity levels.

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  1. 13 July, 17:50
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    D. Fixed costs stay constant in total over a wide range of activity levels.

    Explanation:

    1. The average cost per unit is computed by

    = Total cost : number of units

    It does not predict the total cost at different levels

    2. The direct cost includes direct material, direct labor, etc. It only includes variable cost not fixed cost

    Hence, this option is wrong

    3. The manufacturing overhead comprises both types of cost i. e fixed cost and the variable cost

    Hence, this option is wrong

    4. The fixed cost remain the same whether production level changes or not

    Therefore, this option is right
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