Suppose a company rents a building for $225,000 a year for the purpose of manufacturing between 100,000 and 180,000 units (the relevant range of activity).The rental cost per unit of production will __________ with increase in production level.

Question

Quizplus · Accepted Answer

The rental cost of the building is a fixed cost that does not change with the level of production. Therefore, as production increases within the relevant range, the rental cost per unit will decrease.

Suppose a Company Rents a Building for $225,000 a Year