Question

1.

A) If a company makes 100 units of product, the allocated fixed cost per unit is $5

and the variable cost per unit is $6. What will be the per-unit total cost (fixed plus

variable cost) if the company makes 200 units?

B) At a production and sales level of 1,000 units, the company’s costs are as follows:

Variable manufacturing costs per unit $20

Allocated fixed manufacturing cost per unit $10

Variable selling costs per unit $ 5

Allocated fixed selling costs per unit $ 3

How much would the company have to spend in total (total cash outlay for both

fixed and variable costs), if it makes 1,200 units and sells 200 units (so that 1,000

units are in ending inventory at the end of the period)?

2.: Describe each of the following costs as either fixed, variable, or semi-variable (i.e.,

mixed)

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A) The cost is $500 per unit at a production level of 50 units, and $500 per unit at a

production level of 100 units.

B) The cost is $500 in total at a production level of 50 units, and $1,000 in total at a

production level of 100 units.

C) The cost is $500 in total at a production level of 5 units, and $100 per unit at a

production level of 10 units.

3.: In general, and within the relevant range, as production increases:

(A) Per unit fixed costs and per unit variable costs both stay the same.

(B) Per unit variable costs go down, and per unit fixed costs stay the same.

(C) Per unit fixed costs go down, and per unit variable costs stay the same.

(D) Per unit fixed costs and total variable costs both stay the same.

Answer 1

1.

A.) Fixed Cost per unit at 100 Units = $5;

Variable Cost per unit at 100 units = $6

Total Fixed cost (constant) = 100 units x $5 = $500.

At a unit level of 200 units:

There won't be any change in the per unit variable cost, because variable costs remain constant per unit basis.

Fixed cost per unit would change, and is $2.50 ($500 / 200)

Therefore, per-unit total cost if the ocmpany makes 200 units = $2.50 + $6.00 = $8.50.

B) At 1,000 units:

Variable manufacturing costs = $20 per unit;

Fixed manufacturing cost allocated = $10 per unit;

Variable selling cost = $5 per unit;

Fixed selling costs allocated = $3 per unit.

The variable costs would remain constant on per unit basis, but the fixed costs change as the no. of units change, fixed costs remain constant in total.

Total Fixed Manufacturing costs = $10 x 1,000 units = $10,000

Total Fixed Selling Costs = $3 x 1,000 units = $3,000

Total Fixed costs are $13,000 ($10,000 + $3,000)

At a unit level of 1,200 units, 200 units being sold:

It would spend total fixed costs no matter how much the no. of units produced.

It would spend Variable manufacturing overhead for the entire 1,200 units being all are produced.

But when it comes to variable selling cost, it would spend the variable selling cost only on the goods sold, i.e., only on 200 units.

Therefore, the cash outlay would be:

Variable manufacturing costs = 1,200 units x $20 = $24,000

Variable selling costs = 200 units x $5 = $1,000

Total Fixed costs = $13,000

Total Cash outlay = Variable Manufacturing cost + Variable selling cost + Total fixed cost

Total Cash outlay = $24,000 + $1,000 + $13,000

Total Cash Outlay = $38,000

2. Description of costs into fixed, variable or semi-variable:

A. The cost is fixed as it is not changing even with the change in output.

B. The cost is variable, as it is changing with a constant per unit cost of $10 per unit.

C. The cost is mixed as it has no constant per unit cost, neither a constant total cost. If more information is provided, it is even possible to compute the amount of fixed cost and variable cost inherent in this.

3. In general, and within the relevant range, as production increases:

Per unit fixed costs go down, and per unit variable costs stay the same.

Therefore, Option C is correct answer.

Hope this is helpful!!