Fixed overhead per unit decreases as:
AMaterial cost falls
BOutput decreases
CVariable cost rises
DOutput increases
Answer & Solution
Correct answer: D. Output increases
1. Fixed overheads remain constant in total within a relevant range of activity.
2. When output increases, the same total fixed cost is spread over more units.
3. Hence fixed cost per unit falls.
4. Decreasing output would raise fixed cost per unit, the opposite of the answer.
_Source: ICAI BoS Inter Paper 3, Ch 4 "Overheads", §4.2 By Nature_
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