What is the relationship between variable cost per unit and total variable cost as activity level changes?

What is the relationship between variable cost per unit and total variable cost as activity level changes?

• A. Both rise sharply with activity level
• B. Total variable cost changes in proportion to activity; variable cost per unit remains constant
• C. Total variable cost remains constant; variable cost per unit increases with activity
• D. Both fall as activity increases

Answer: (B)

Variable costs change directly with the level of activity. The amount spent depends on how much activity you undertake, but the cost per unit of activity stays constant. This means total variable cost grows in direct proportion to the activity level. For example, if the variable cost per unit is $5 and you produce 100 units, total variable cost is $500; if you produce 200 units, it rises to $1,000. The key takeaway is that total variable cost changes in proportion to activity, while the variable cost per unit remains unchanged (within the relevant range).

Variable costs change directly with the level of activity. The amount spent depends on how much activity you undertake, but the cost per unit of activity stays constant. This means total variable cost grows in direct proportion to the activity level. For example, if the variable cost per unit is $5 and you produce 100 units, total variable cost is $500; if you produce 200 units, it rises to $1,000. The key takeaway is that total variable cost changes in proportion to activity, while the variable cost per unit remains unchanged (within the relevant range).