Question

Soft Serve Hut sells frozen yogurt to customers. The monthly fixed costs of operating the business include things like rent and depreciation of equipment. The variable costs of the business include the cost of materials, supplies and labor. In a month when 10,000 frozen yogurts were sold, the fixed cost was $8,500 and the variable costs were $2,000. (Assume all costs are within the relevant range.) Show all work.

A) At the current level, what is the total cost per unit? $

If sales increase to 17,000 frozen yogurts:

B) What is the expected fixed cost? $

C) What is the expected variable cost? $

D) What is the total expected cost? $

E) What is the expected total cost per unit? $

If sales decreased to 4,250 frozen yogurts:

F) What is the expected fixed cost? $

G) What is the expected variable cost? $

H) What is the total expected cost? $

I) What is the expected total cost per unit? $

Answer 1

Answer A.

Sales Volume = 10,000 units
Fixed Costs = $8,500
Variable Costs = $2,000

Variable Cost per unit = Variable Costs / Sales Volume
Variable Cost per unit = $2,000 / 10,000
Variable Cost per unit = $0.20

Total Costs = Fixed Costs + Variable Costs
Total Costs = $8,500 + $2,000
Total Costs = $10,500

Cost per unit = Total Costs / Sales Volume
Cost per unit = $10,500 / 10,000
Cost per unit = $1.05

Answer B-E.

Sales Volume = 17,000 units

Fixed Costs = $8,500

Variable Costs = Variable Cost per unit * Sales Volume
Variable Costs = $0.20 * 17,000
Variable Costs = $3,400

Total Costs = Fixed Costs + Variable Costs
Total Costs = $8,500 + $3,400
Total Costs = $11,900

Cost per unit = Total Costs / Sales Volume
Cost per unit = $11,900 / 17,000
Cost per unit = $0.70

Answer F-I.

Sales Volume = 4,250 units

Fixed Costs = $8,500

Variable Costs = Variable Cost per unit * Sales Volume
Variable Costs = $0.20 * 4,250
Variable Costs = $850

Total Costs = Fixed Costs + Variable Costs
Total Costs = $8,500 + $850
Total Costs = $9,350

Cost per unit = Total Costs / Sales Volume
Cost per unit = $9,350 / 4,250
Cost per unit = $2.20