Which statement correctly describes a variable cost within its relevant range?
Correct answer: C. Total cost changes in proportion to activity
- A. Total cost stays constant as output changes
- B. Unit cost increases as output increases
- C. Total cost changes in proportion to activity
- D. Total cost changes only after capacity expands
Explanation
A variable cost changes in total in proportion to the level of activity within the relevant range. Its cost per unit generally remains constant, unlike a fixed cost whose total usually remains stable.
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About Cost Accounting
Cost accounting measures and analyses the cost of producing goods or providing services for planning, control and pricing decisions. It covers direct and indirect costs, fixed and variable costs, job and process costing, break-even analysis, marginal costing, overhead allocation, and the difference between product cost and period cost.
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