Question

Green and White Company reported the following monthly data:

Units produced 2,500 units
Sales price $ 30 per unit
Direct materials $ 1 per unit
Direct labor $ 3 per unit
Variable overhead $ 4 per unit
Fixed overhead $ 10,000 in total

What is Green and White's contribution margin for this month if 1,030 units were sold?

O $55,000
O $22,660
O $30,900
O $75,000

Answer 1

In Business, the average fixed cost curve represents how fixed costs per unit decrease as production increases, illustrating the concept of 'spreading the overhead'. This curve is a hyperbola that approaches zero as quantity produced increases.

Step-by-step explanation:

The subject of the question is Business, specifically focusing on the concept of fixed costs in cost accounting. When we talk about fixed costs or overhead, we refer to expenses that do not change with the level of output produced, such as rent, salaries, and equipment leasing. By dividing the fixed cost by the quantity of output produced, we obtain the average fixed cost. A key concept here is 'spreading the overhead', which means the more units produced, the lower the average fixed cost per unit will be.

Understanding the Average Fixed Cost Curve

If we suppose the fixed cost is $1,000, the average fixed cost curve is a hyperbola that approaches the horizontal axis asymptotically. This demonstrates that as production increases, the average fixed cost per unit decreases. This is because the total fixed cost is being spread over more units, hence the term 'spreading the overhead'.