Question

A company manufactures a single product. The total cost of making 2000 units is $30,000 and the total cost of making 3,000 units is $40,000. Within this range of activity:

1. What is the total fixed cost?

2. What is the variable cost per unit?

3. What is the total cost per unit at each level of activity?

Answer 1

Dear Student,

Let the variable cost per unit = $ A and and Total Fixed cost = TFC

Now we know that Total cost = (Variable cost per unit * No. of units)+ Fixed cost

therefore,

equation (1) is A*2,000 + TFC = 30,000

equation (2) is A*3,000 + TFC = 40,000

solving equation (1) & (2) we get A= $10

So, (1) Total Fixed cost = 30,000- 10*2,000 = $ 10,000

(2) Variable cost per unit = $ 10

(3) Total cost per unit at 2,000 units = 30,000/2,000 = $ 15 per unit

Total cost per unit at 3,000 units = 40,000/3,000 = $ 13.33 per unit

Regards,