Question

The per-unit cost of an item is its average total cost (= total cost/quantity). Suppose that a new cell phone application costs $150,000 to develop and only $0.60 per unit to deliver to each cell phone customer. Instructions: Round your answers to 2 decimal places. What will be the per-unit cost of the application if it sells 100 units? b. What will be the per-unit cost of the application if it sells 1,000 units? c. What will be the per-unit cost of the application if it sells 1 million units?

Answer 1

a) units sold = 100

fixed cost = 150000

Variable cost per unit = 0.6

total Variable cost = 0.6 * 100 = 60

Total cost = 150000 + 60 = 150060

per unit cost = total cost/ no. of units = 150060/100 = 1500.60

b) units sold = 1000

fixed cost = 150000

Variable cost per unit = 0.6

total Variable cost = 0.6 * 1000 = 600

Total cost = 150000 + 600 = 150600

per unit cost = total cost/ no. of units = 150600/1000 = 150.60

c) units sold = 1000000

fixed cost = 150000

Variable cost per unit = 0.6

total Variable cost = 0.6 * 1000000 = 600000

Total cost = 150000 + 600000 = 750000

per unit cost = total cost/ no. of units = 750000/1000000 = 0.75