48. When a department or product line is dropped, the common fixed costs which h

Question

48.       When a department or product line is dropped, the common fixed costs which had been allocated to that department

A.        are eliminated.

B.        become variable costs.

C.        are allocated to the remaining departments or product lines.

D.        become sunk costs.

Which of the following correctly describes fixed and variable cost behavior as total volume increases?

A.        Unit fixed costs stay the same and unit variable costs increase.

B.        Total fixed costs stay the same and total variable costs increase.

C.        Unit fixed costs decrease and total variable costs decrease.

D.        Unit fixed costs decrease and unit variable costs decrease.

Explanation / Answer

48. When a deoartment or product line is dropped, the common fixed cost allocated to that department are allocated to the remaining departments or product lines as Common Fixed costs do not change with dropping a particular department or product line.

So Option C is correct.

49. As total volume increases, the unit variable cost remain the same but the Total Variable cost increases. The Total Fixed cost remains the same with increasing volumes.

Therefore option B is correct.

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