FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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**Question:** When the level of activity increases, total fixed costs

a. decrease.
b. remain the same.
c. increase.
d. change, but the direction depends on the specific situation.

**Explanation:**
This question is about how total fixed costs behave when the level of activity increases. Fixed costs, by definition, do not change with the level of activity within a relevant range; this means the correct answer is typically **b. remain the same.** Fixed costs are expenses that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance.

**Diagrams and Graphs:** 
If graphs or diagrams were present, they would likely illustrate the behavior of fixed costs relative to variable costs. For example, a fixed cost graph would display a horizontal line indicating that the total fixed costs do not change as the level of activity increases. Contrastingly, a variable cost graph would show a line that rises with the increase in activity level, reflecting that variable costs change directly with changes in the level of production or activity.
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Transcribed Image Text:**Question:** When the level of activity increases, total fixed costs a. decrease. b. remain the same. c. increase. d. change, but the direction depends on the specific situation. **Explanation:** This question is about how total fixed costs behave when the level of activity increases. Fixed costs, by definition, do not change with the level of activity within a relevant range; this means the correct answer is typically **b. remain the same.** Fixed costs are expenses that do not fluctuate with changes in production level or sales volume, such as rent, salaries, and insurance. **Diagrams and Graphs:** If graphs or diagrams were present, they would likely illustrate the behavior of fixed costs relative to variable costs. For example, a fixed cost graph would display a horizontal line indicating that the total fixed costs do not change as the level of activity increases. Contrastingly, a variable cost graph would show a line that rises with the increase in activity level, reflecting that variable costs change directly with changes in the level of production or activity.
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