When using a flexible budget, what will occur to fixed costs as the activity level increases within the relevant range?

When using a flexible budget, what will occur to fixed costs as the activity level increases within the relevant range?

A. Fixed costs per unit will decrease.

B. Fixed costs per unit will remain unchanged.

C. Fixed costs per unit will increase.

D. Fixed costs are not considered in flexible budgeting.

Answer: A. Fixed costs per unit will decrease.

This is true, as it is evident from flexible budgeting’s name: the activity level rises within the pertinent range yet the total remains fixed, costs. Nonetheless, it means that if we are going to distribute the fixed costs to the product, then the large fixed cost will be reduced with increased production. This has to do with the fact that increased Total Fixed costs are being spread out over greater numbers of units of output. For example, if rent is 10000$ per month and total production units are 1000 then the rate is 10$ for each production unit. When total production attainment is 2,000, the total costs are just slightly lower at 15500, when fixing costs are per unit, fixed costs are 5 and the total is 10000.