Question

Paolucci Corporation's relevant range of activity is 6,900 units to 14,500 units. When it produces and sells 10,700 units, its average costs per unit are as follows: Average Cost per Unit Direct materials $ 6.85 Direct labor $ 3.75 Variable manufacturing overhead $ 1.75 Fixed manufacturing overhead $ 3.30 Fixed selling expense $ 1.05 Fixed administrative expense $ 0.75 Sales commissions $ 1.00 Variable administrative expense $ 0.65 If 9,700 units are sold, the variable cost per unit sold is closest to:

Answer 1

The variable cost per unit for the Paolucci Corporation remains the same within the relevant range of activity. The costs per unit of direct materials, labor, variable manufacturing overhead, and variable administrative expense add up to $12.95, which applies to both 10,700 and 9,700 units sold.

Step-by-step explanation:

To calculate the variable cost per unit sold, we need to consider the costs that vary with production. The average costs given for 10,700 units include direct materials, direct labor, variable manufacturing overhead, and variable administrative expense. These four costs are summed up to find the total variable cost per unit. To find the variable cost per unit for 9,700 units sold, we will use the same costs per unit since variable costs per unit remain constant within the relevant range of activity.

Total Variable Cost per Unit = Direct materials + Direct labor + Variable manufacturing overhead + Variable administrative expense

Total Variable Cost per Unit for 10,700 units = $6.85 + $3.75 + $1.75 + $0.65 = $12.95 per unit

Since we are within the relevant range (6,900 to 14,500 units), the variable cost per unit will not change based on the activity level. Thus, the variable cost per unit sold for 9,700 units will also be $12.95 per unit.

Answer 2

Total Variable Cost per Unit $14

Step-by-step explanation:

We re asked for the variable cost per unit which are constant at unit level.

The fixed cost are not relevant.

So we just need to add the current variable cost.

Direct materials $ 6.85

Direct labor $ 3.75

Variable manufacturing overhead $ 1.75

Sales commissions $ 1.00

Variable administrative expense $ 0.65

Total Variable $14