Question

Relevant Range and Fixed and Variable Costs

Third World Gamer Inc. manufactures components for computer games within a relevant range of 500,000 to 1,000,000 disks per year. Within this range, the following partially completed manufacturing cost schedule has been prepared:

Components produced		500,000		750,000		1,000,000
Total costs:
	Total variable costs	$600,000		(d)		(j)
	Total fixed costs	600,000		(e)		(k)
	Total costs	$1,200,000		(f)		(l)
Cost per unit:
	Variable cost per unit	(a)		(g)		(m)
	Fixed cost per unit	(b)		(h)		(n)
	Total cost per unit	(c)		(i)		(o)

Complete the cost schedule below. Round costs per unit to the nearest cent.

Cost Schedule
Components produced		500,000		750,000		1,000,000
Total costs:
	Total variable costs	$600,000		$		$
	Total fixed costs	600,000		$		$
	Total costs	$1,200,000		$		$
Cost per unit:
	Variable cost per unit	$		$		$
	Fixed cost per unit
	Total cost per unit	$		$		$

Answer 1

500,000 components produced:

Variable cost per unit = Total variable costs / Number of components produced
Variable cost per unit = $600,000 / 500,000
Variable cost per unit = $1.20

Fixed cost per unit = Total fixed costs / Number of components produced
Fixed cost per unit = $600,000 / 500,000
Fixed cost per unit = $1.20

750,000 components produced:

Variable cost per unit = $1.20
Total fixed costs = $600,000

Total variable costs = Variable cost per unit * Number of components produced
Total variable costs = $1.20 * 750,000
Total variable costs = $900,000

Fixed cost per unit = Total fixed costs / Number of components produced
Fixed cost per unit = $600,000 / 750,000
Fixed cost per unit = $0.80

1,000,000 components produced:

Variable cost per unit = $1.20
Total fixed costs = $600,000

Total variable costs = Variable cost per unit * Number of components produced
Total variable costs = $1.20 * 1,000,000
Total variable costs = $1,200,000

Fixed cost per unit = Total fixed costs / Number of components produced
Fixed cost per unit = $600,000 / 1,000,000
Fixed cost per unit = $0.60