Question

Owens sells computers. He purchases the computers for $500 each and incurs $8,000 in fixed operating expenses each month. The average cost per unit is

A. $580 if Owens makes and sells 100 units of product.
B. $660 If Owens makes and sells 50 units of product.
C. $820 if Owens makes and sells 25 units of product
D. All of the answers are correct.

Answer 1

All of the answers provided are correct. Owens' average cost per unit varies depending on how many units are sold; it's $580 for 100 units, $660 for 50 units, and $820 for 25 units, due to the fixed operating expenses being spread out over the number of units sold.

Step-by-step explanation:

When calculating the average cost per unit for Owens' computer sales, it's important to consider both the variable costs per unit and the fixed operating expenses. To find the average cost per unit, you add the fixed expenses to the total variable costs and then divide by the number of units sold.

• If Owens sells 100 units, the average cost per unit is (100 * $500 + $8,000) / 100 = $580 per unit.
• If Owens sells 50 units, the average cost per unit is (50 * $500 + $8,000) / 50 = $660 per unit.
• If Owens sells 25 units, the average cost per unit is (25 * $500 + $8,000) / 25 = $820 per unit.

Therefore, all of the answers provided are correct. The fewer units Owens sells, the higher the average cost per unit will be, due to the spread of the fixed expenses over a smaller number of units.