Fixed costs per period are generally described as which?

Fixed costs per period are generally described as which?

• A. Vary with production
• B. Change with sales volume
• C. Included in prime cost
• D. Do not vary with production within a relevant range

Answer: (D)

Fixed costs per period stay constant within a given level of activity. They do not change as you produce more or fewer units, as long as you remain within the relevant range. So the total fixed cost is the same each period, but the fixed cost per unit falls as production increases because you’re spreading that same cost over more units. This is why fixed costs are treated separately from variable costs in budgeting and cost–volume–profit analysis. Fixed costs are not part of prime cost (which includes only direct materials and direct labor). The key idea is that, within the relevant range, fixed costs do not vary with production or sales.

Fixed costs per period stay constant within a given level of activity. They do not change as you produce more or fewer units, as long as you remain within the relevant range. So the total fixed cost is the same each period, but the fixed cost per unit falls as production increases because you’re spreading that same cost over more units. This is why fixed costs are treated separately from variable costs in budgeting and cost–volume–profit analysis. Fixed costs are not part of prime cost (which includes only direct materials and direct labor). The key idea is that, within the relevant range, fixed costs do not vary with production or sales.