Question

Based on the following cost data, items labeled (a) and (b) in the table below are which of the following amounts, respectively? Number of units: 1,500 3,000 Total cost : Variable $ 7,500 $15,000 Fixed $ 6,000 $6,000 Cost per unit: Variable : $ 5

(a) Fixed $ 4
(b)

Answer 1

To determine variable cost per unit (a), divide the total variable cost by the number of units, which is $5. For the fixed cost per unit (b), divide the total fixed cost by the number of units produced, resulting in $4 when 1,500 units are produced.

Step-by-step explanation:

The question asks to identify the cost per unit for variables labeled (a) for variable costs and (b) for fixed costs, respectively, given a certain number of units. To find the cost per unit for variable costs (a), we use the provided information that at 1,500 units the variable costs are $7,500, and at 3,000 units the variable costs double to $15,000. This indicates that the variable cost per unit is constant. As such, dividing the total variable cost by the number of units at either level of production ($7,500 / 1,500 or $15,000 / 3,000) gives us the variable cost per unit which is $5. This is the answer for (a)

For the fixed costs (b), regardless of the number of units produced, the fixed costs remain $6,000. Therefore, the fixed cost per unit decreases as the number of units increases. When producing 1,500 units, the fixed cost per unit is calculated as $6,000 / 1,500, which equals $4 per unit. When producing 3,000 units, it would be $6,000 / 3,000, which equals $2 per unit. Thus, the fixed cost per unit when producing 1,500 units is $4, and this is the answer for (b).