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Question
Variable cost per unit increases when ______.
Options
Volume of production decreases
Volume of production increases
Cost of raw material decreases
Tax decreases
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Solution
Variable cost per unit increases when volume of production decreases.
Explanation:
When manufacturing volume drops, fixed expenses are spread across fewer units, potentially raising the overall cost per unit if variable costs are not strictly per unit. However, it's worth noting that this usually relates to fixed costs rather than variable expenditures. In most cases, genuine variable costs per unit should be consistent and independent of production volume.
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