How will unit (average) cost of manufacturing (materials, labor and overhead) usually change if the production level rises?
A)It will remain constant.
B)It will increase in direct proportion to the production increase.
C)It will increase, but inversely with the production increase.
D)It will decrease inversely and in direct proportion to the production increases.
E)It will decrease, but not in direct proportion to the production increase.

Question

Quizplus · Accepted Answer

As production levels increase, fixed costs are spread over more units, reducing the average cost per unit. However, variable costs may not decrease proportionally, so the decrease in average cost is not always directly proportional to the increase in production.

How Will Unit (Average) Cost of Manufacturing (Materials, Labor and Overhead)