Question

Owens sells computers. He purchases the computers 400 each and incurs3,000 in fixed operating expenses each month. The average cost per unit is ______ if Owens makes and sells 100 units of product.

1) $430
2) $460
3) $520
4) Cannot be determined

Answer 1

The average cost per unit for Owens when making and selling 100 units is $430, which includes both variable costs and fixed operating expenses.

Step-by-step explanation:

The average cost per unit when Owens makes and sells 100 units of computers, can be calculated by adding the total fixed costs to the total variable costs and then dividing by the number of units produced and sold.

The fixed operating expenses are given as $3,000. As Owens purchases the computers for $400 each, the variable cost per unit is $400. Therefore, for 100 units, the total variable cost is 100 units × $400/unit = $40,000.

Now, we add the fixed costs to the total variable costs: $3,000 (fixed) + $40,000 (variable) = $43,000.

The average cost per unit is then $43,000 ÷ 100 units = $430 per unit.