When making decisions using fixed costs, the focus should be on total costs and not unit costs.

Question

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Fixed costs are those costs that do not vary with changes in the level of production or sales. Examples of fixed costs include rent, salaries, and insurance premiums. When making decisions using fixed costs, such as whether to invest in a new facility or purchase new equipment, the focus should be on total costs rather than unit costs. This is because fixed costs are typically incurred regardless of the level of production or sales, so the unit cost will vary depending on the level of production, but the total cost will remain constant. Therefore, it is important to consider the total cost when making decisions that involve fixed costs.

When Making Decisions Using Fixed Costs, the Focus Should Be