Solution

Fixed overhead is a cost that remains the same regardless of the volume of production. This includes costs such as rent, depreciation, and salaries of administrative staff. Variable overhead is a cost that varies in proportion to the volume of production. This includes costs such as the cost of raw materials, utilities, and the wages of production workers. The per unit expenses of the variable overhead portion of factory overhead will vary with the volume of production, because the total cost of variable overhead will increase as the volume of production increases. However, the per unit cost of variable overhead will remain the same, because the total cost of variable overhead is divided by the increasing volume of production. The per unit expenses of the fixed overhead portion of factory overhead will remain the same with the volume of production, because the total cost of fixed overhead does not change with the volume of production. So the answer is (a) (1) – fixed; (2) – variable.