Fixed vs. Variable Costs Behavior with Output Changes

Steps:

• Define fixed costs: total amount remains constant regardless of output level; per unit varies inversely with output.
• Define variable costs: total amount varies directly with output; per unit remains constant per unit produced.
• Compare to forecast: lower actual output means total fixed cost unchanged, but fixed cost per unit higher than forecast.
• Assess variable costs: total variable cost lower than forecast due to less output, but variable cost per unit unchanged.

Why C is correct:

• Total fixed cost (2) is independent of output volume by definition, and variable cost per unit (4) is constant per unit produced, matching forecast rates.

Why the others are wrong:

• A: Fixed cost per unit (1) rises with lower output, differing from forecast.
• B: Total variable cost (3) decreases proportionally with reduced output.
• D: Total variable cost (3) decreases with lower output.

Final answer: C