Fixed cost per unit increases when _______.

The correct answer is: D. production volume decreases.

Fixed costs are costs that do not change in total with the change in the number of units produced. They are also called overhead costs or indirect costs. Examples of fixed costs include rent, insurance, and depreciation.

When production volume decreases, the fixed costs are spread over a smaller number of units, which increases the fixed cost per unit. For example, if a company has a fixed cost of $100,000 and produces 10,000 units, the fixed cost per unit is $10. If the company produces 5,000 units, the fixed cost per unit is $20.

The other options are incorrect because:

• Option A: Variable costs are costs that change in total with the change in the number of units produced. They are also called direct costs. Examples of variable costs include direct labor and direct materials. When production volume increases, the variable costs also increase.
• Option B: When variable costs per unit decrease, the total variable costs decrease. This is because the company can produce the same number of units with a lower cost.
• Option C: When production volume increases, the fixed costs stay the same. This is because fixed costs do not change with the change in the number of units produced.