Question

Brita Company incurred $154,000 of fixed cost and $171,600 of variable cost when 3,900 units of product were made and sold.

If the company's volume increases to 4,400 units (within relevant range), the total cost per unit will be:

A. $39.00.

B. $74.00.

C. $35.00.

D. $79.00.

Answer 1

Solution:

We need to understand the behavior of fixed cost and variable cost with the production volume.

Variable Cost

Variable Cost is the cost which varies in totality with the production volume. It means when production increase the variable cost in totality increase and vice a versa. The Per Unit Variable Cost remains same.

Fixed Cost

Fixed Cost is the cost which does not vary in totality with the production volume. It means whether production increases or decreases the total fixed cost will not change with a relevant range.

In the given question, fixed cost and variable cost is given.

Variable Cost per Unit = Total Variable Cost / Units Produced and Sold = $171,600 / 3,900 = $44 per unit

Total Variable Cost for 4,400 Units = 4,400 Units x Unit Variable Cost $44 = $193,600

Total Fixed Costs = $154,000

Total Cost per Unit = (Total Variable Cost at 4,400 Units + Total Fixed Costs) / Total Units 4,400 Units

= ($193,600 + 154,000) / 4,400 Units

= $79 per unit

Hence, the correct option is D. $79

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