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Variable cost per unit.
Answer & Solution
Correct Answer:
Option
A
In financial management, variable cost per unit refers to costs that fluctuate in direct proportion to the level of output or production. Therefore, the correct option is A: varies with the level of output. Variable costs typically include expenses such as raw materials, labor, and utilities, which increase or decrease as production levels change.
Option B: remains constant irrespective of the level of output
This option describes a fixed cost rather than a variable cost. Fixed costs remain constant regardless of the level of output. They do not change with changes in production levels.
Option C: changes with the growth of the firm
This option doesn't accurately define variable cost per unit. Variable costs are related to production levels, not necessarily the growth of the firm. They increase or decrease with the quantity of output produced, not necessarily with the overall growth of the firm.
Option D: does not change with volume of production
This option describes a fixed cost rather than a variable cost. Variable costs do change with the volume of production. As more units are produced, variable costs increase, and they decrease when production levels decrease.
Option B: remains constant irrespective of the level of output
This option describes a fixed cost rather than a variable cost. Fixed costs remain constant regardless of the level of output. They do not change with changes in production levels.
Option C: changes with the growth of the firm
This option doesn't accurately define variable cost per unit. Variable costs are related to production levels, not necessarily the growth of the firm. They increase or decrease with the quantity of output produced, not necessarily with the overall growth of the firm.
Option D: does not change with volume of production
This option describes a fixed cost rather than a variable cost. Variable costs do change with the volume of production. As more units are produced, variable costs increase, and they decrease when production levels decrease.
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Variable cost per unit is defined as a cost that stays the same for each individual unit produced, regardless of the total volume of production. While the total variable cost increases or decreases in direct proportion to changes in production levels, the amount allocated to a single unit (such as the cost of raw materials or direct labor per item) remains constant within a specific production range.
Why other options are incorrect
❌ A. varies with the level of output: This describes total variable cost, not variable cost per unit. Total variable cost rises as output increases.
❌ C. changes with the growth of the firm: Firm growth might lead to long-term changes due to economies of scale, but by standard definition, the variable cost per unit is assumed to be stable across production volumes.
❌ D. does not change with volume of production: While this sounds similar to option B, option B is more technically accurate in the context of cost behavior definitions, specifically emphasizing that it "remains constant" per unit even as total costs fluctuate.
Answer given by the admin is absolutely correct