Question

South coast appliance store is a small company that has hired you to preform some management advisory services. The following information pertains to 2017 operations.

sales (5,500 microwave ovens) 5,500,000

cost of goods sold 962,500

store operating cost per year 150,000

operating costs per year. 220,000

advertising and promotion per year 18,960

commission(3.2% of sales) 176,000

what was the variable cost per unit sold for 2017?

Answer 1

variable costs per unit changes with change in amount of sales.

whereas fixed costs like rent, depreciaion etc are constant they do not change with change in sales.

Here commission(3.2% of sales are variable costs) as they depend upon sales amount.

cost of goods sold are direct costs related to manufacturing of sold goods. so they are variable.

store operating cost per year ,operating costs per year, advertising and promotion per year are fixed costs that will remain same irrespective of sales amount.

So, variable cost per unit

=[$962,500+$176,000]/5,500 ovens

=$1,138,500/5,500

=$207 per unit

Thus, Variable costs is $207 per unit sold in 2017

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