Question

When output volume increases, do variable costs per unit increase, decrease, or stay the same within the relevant range of activity? Explain.

Short answer

Answer

Variable cost per unit is not affected by an increase in output volume.

Step-by-step solution

Step-By-Step SolutionStep 1: Definition of Cost of Goods Sold

The cost incurred by the business entity in manufacturing the goods sold to the customer is included in the cost of goods sold. It includes the only direct cost associated with the production.

Effect of increase in volume over variable cost

The variable cost per unit will remain the same even if the output volume increases. An increase or decrease in the output volume will affect the business entity's total variable cost rather than the variable cost per unit.