Question

A company operates with a mix of fixed and variable costs (which are not given but you need to figure out). Under scenario A, a company needs to produce 3,000 units, calculated average cost is $3 per unit. Under Scenario B, a company needs to produce 6,000 units, its calculated average cost is $2.50.

The company's variable costs PER UNIT are:

Group of answer choices

$1

$

$3

$2

Answer 1

Ans:

(1) Average cost per unit at 3000 units = $ 3

Total cost at 3000 units = number of units * average cost per unit

= 3000 * $ 3

= $ 9,000.

(2) Average cost per unit at 6,000 units = $ 2.50

Total cost at 6000 units = number of units * average cost per unit

= 6,000 * $ 2.50

= $ 15,000.

Variable cost per unit = (Total cost at 6,000 unit - Total cost at 3,000 units) / 6000 units - 3000 units

= $ 15,000 - $ 9,000 / 3000 units

= $ 6,000 / 3000

= $ 2 per unit

Option D