Question

10

The per-unit cost of an item is its average total cost (= total cost/quantity). Suppose that a new cell phone application costs $200,000 to develop and only $0.70 per unit to deliver to each cell phone customer.

Instructions: Round your answers to 2 decimal places.

a. 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

ANSWER:

1) 100 Units

total cost = development cost + per unit cost * no of units = $200,000 + $0.70 * 100 = $200,000 + $70 = $200,070

per unit cost = total cost / no of units = $200,070 / 100 = $2,000.70

2) 1,000 Units

total cost = development cost + per unit cost * no of units = $200,000 + $0.70 * 1000 = $200,000 + $700 = $200,700

per unit cost = total cost / no of units = $200,700 / 1000 = $200.7

3) 1,000,000 Units

total cost = development cost + per unit cost * no of units = $200,000 + $0.70 * 1,000,000 = $200,000 + $700,000 = $900,000

per unit cost = total cost / no of units = $900,000 / 1,000,000 = $0.90