Question

Martinez Company’s relevant range of production is 7,500 units to 12,500 units. When it produces and sells 10,000 units, its average costs per unit are as follows:

 

	Average Cost Per Unit
Direct materials	$ 5.60
Direct labor	$ 3.10
Variable manufacturing overhead	$ 1.40
Fixed manufacturing overhead	$ 4.00
Fixed selling expense	$ 2.60
Fixed administrative expense	$ 2.20
Sales commissions	$ 1.20
Variable administrative expense	$ 0.45

4. If 12,500 units are produced and sold, what is the variable cost per unit produced and sold? (Round your answer to 2 decimal places.)

Answer 1

Variable costs are those expenses that change with a change in the level of activity. They are directly proportional to the scale of operations of the business they are pertaining to.

 

Variable Cost Per Unit for Production and Sales = Direct Material + Direct Labor + Variable Manufacturing Overhead + Sales Commissions + Variable Administrative Expense

 

Variable Cost / Unit = 5.6 + 3.1 + 1.4 + 1.2 + 0.45 = $ 11.75 / unit

Variable Cost per unit: $11.75