Question

Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Simon Inc. expects to produce 115,000 units. Simon's relevant range for production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is the expected variable cost

Answer 1

To calculate the expected variable cost for producing 115,000 units, the variable cost per unit ($4) is multiplied by the number of units (115,000), equaling $460,000.

Step-by-step explanation:

When determining the expected variable cost of producing 115,000 units at Simon Inc., we first need to establish the variable cost per unit. Given that Simon Inc. is currently producing 110,000 units at a variable cost of $440,000, the unit variable cost is calculated by dividing the total variable costs by the number of units produced. This results in a cost of $4 per unit ($440,000 / 110,000 units).

Since variable costs vary directly with the level of production within the relevant range, and Simon Inc. is expected to produce 115,000 units next year which falls within the relevant range of 100,000 to 120,000 units, we can simply multiply the unit variable cost by the number of units expected to be produced.

Therefore:

• Variable cost per unit = $440,000 / 110,000 = $4 per unit
• Expected variable cost for 115,000 units = 115,000 units * $4 per unit
• Expected variable cost = $460,000

Answer 2

Complete question:

Simon Inc. currently produces 110,000 units at a cost of $440,000. The cost is variable. Next year Simon Inc. expects to produce 115,000 units. Simon's relevant range for production is 100,000 to 120,000 units. If 115,000 units are produced next year, what is the expected variable cost?

A) $420,000

B) $430,000

C) $440,000

D) $460,000

Step-by-step explanation:

Given ,

Simon Inc. currently produces 110,000 units at a cost of $440,000

Next year Simon Inc. expects to produce 115,000 units

Range for production is 100,000 to 120,000 units.

Now , we need to find out

If 115,000 units are produced next year, then the expected variable cost equation is ,

Variable cost per unit =
`(Variable cost)/(Unit)`

= $460,000