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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Which of the following statements describes variable costs?
A. Costs that vary on a per-unit basis as the level of activity changes
B. Costs that vary in total in direct proportion to changes in the level of activity
C. Costs that remain the same in total dollar amount as the level of activity changes
D. Costs that vary on a per-unit basis, but remain the same in total as the level of activity changes

To determine

Concept Introduction:

Variable, Fixed and Mixed Cost:

There are three types of costs according to the unit of production; Variable, Fixed and Mixed. Variable costs change proportionally with the number of units produced and variable cost per unit remains constant. Fixed Cost remains same in totality irrespective of the number of units produced. The mixed cost is the mix of variable and fixed cost, some of its part is fixed and some variable.

To choose:

The statement that describes the variable costs

Answer

B. The costs that vary in total in direct proportion to change in the level of activity

Explanation

Explanation for correct answer:

Variable cost is the cost that varies in total in direct proportion to change in the level of activity. Hence option B is the right answer.

Explanation for incorrect answers:

A. Variable costs per unit do not change with the change in the level of activity; hence it is not the right answer.

C. Variable cost is the cost that varies in total in direct proportion to change in the level of activity; hence it is not the right answer.

D. Variable costs per unit do not change with the change in the level of activity; hence it is not the right answer.

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