Question

What will happen to variable costs when the level of activity decreases?

Answer 1

Total cost will increase because variable costs increase as production increases. Fixed costs per unit decrease as production increases.

Answer 2

Answer: Variable costs will decrease with the decrease in level of activity .

Explanation :

Variable costs are expenses that vary in direct proportion to the quantity of output.

variable costs are a direct function of production volume, rising whenever production expands and falling whenever it contracts.

It is directly related to the level of activity.

If the level of activity increases, variable cost increases.

If the level of activity decreases , variable cost also decreases.

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