Question

Hugh Company incurred $40,000 of fixed cost and $150,000 of variable cost when 4,000 units of product were made and sold. If the company’s volume increases to 5,000 units, the total cost per unit will be:

Answer 1

Fixed Cost = $40000

Fixed cost per unit = $40000/4000 units = $10/unit

Variable cost for 4000 units =$150000

Variable cost per unit = $150000/4000 units = $37.5/unit

So Current total Cost per unit for 4000 units = Variable cost per unit + Fixed cost per unit

It will be $37.5/unit + $10/unit = $47.5/unit

As the Volume increases fixed cost remain unchanged .

So for 5000 units , fixed costs will be $40000 only.

Variable cost per unit will not change with change in volume.

So total Variable cost for 5000 units = $37.5/unit * 5000 units = $187500

So total cost = Variable cost + Fixed cost

It will be $40000 + $ 187500 = $227500

So total cost per unit will be $227500/5000 units = $45.5/unit