The HJ Chang Company produces soup, which it sells for $4.50 per unit. The company recently...

The HJ Chang Company produces soup, which it sells for $4.50 per unit. The company recently had the following costs to manufacture 30,000 units: (a) rent on the factory $28,000, (b) salaries for management $102,000, (c) wages to factory workers $52,800, (d) utilities for factory of $8,500 and (e) product ingredients $38,000. What was the company’s variable cost per unit? Round your final answer to the nearest penny.

ANSWER: $3.31 need a step by step How-To

Expert Solution

Company's variable cost per unit = $3.31per unit

Solution :

Variable cost is the cost that relates to product and not period. That means, which changes along with the changes in production volume. But the period cost is related to a specific period, it don't change with the changes in volume of production. It remains the same for that period irrespective of units of production. So only those costs which has such variable nature is considered.

Total variable cost =

1. Wages to factory workers of $52800 - wages to factory workers changes along with production. When more units are produced more wages are paid and if produced less, less wages are paid.

2. Utilities to factory of $8500 - more number of utilities are required if more units are produced and if they produced less utilities consumption also remains less. So it also variable.

3. Product ingredients of $38000 - product ingredients cost is also variable as more ingredients are required to produce more units and vice versa.

Therefore, total variable cost for 30000 units = $52800 + $8500 + $38000 = $99300

Variable cost per unit = total variable cost /number of units produced.

= $99300/30000 units

= $3.31 per unit.

Note : rent for factory is a fixed cost as it remains same irrespective of production units and Leo the salaries for management is fixed cost as management takes fixed amount as their salary irrespective of production level. So these are not considered.

ekkarill92 answered 1 year ago

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