Question

Question 1

The BAA Company has established a budget of $50,000.00 for the production of 1000 units. Half of this amount is fixed.

At an actual production level of 500 units

1. Determine the variable cost per unit
2. Determine the fixed cost per unit
3. Determine total fixed cost
4. Determine total variable cost
5. Determine total costs

Answer 1

Total budgeted Cost for 1000 units = $50000

Fixed cost for 1000 units = $50000 / 2 = $25000

Variable cost for 1000 units = $50000 - $25000 = $25000

Variable cost per unit = $25000 / 1000 = $25

Variable cost changes with the level of production while fixed cost remains the same. Variable cost per unit remains same.

Now, for 500 units,

(a) Variable cost per unit = $25

(b) Fixed cost per unit = Total fixed cost / Number of units

Fixed cost per unit = $25000 / 500 = $50

(c) Total fixed cost = Fixed cost per unit * Total number of units produced

Total fixed cost = $50 * 500 = $25000

(d) Total variable cost = Variable cost per unit * Number of units produced

Total variable cost = $25 * 500 = $12500

(e) Total cost = Total fixed cost + Total variable cost

Total cost = $25000 + $12500 = $37500