Question

Total fixed costs for Diamond Enterprises are $800,000. Total costs, including both fixed and variable, are $890,000 if 120,000 units are produced. What would be the fixed cost per unit at 200,000 units?a) $4.00 per unitb) $7.42 per unitc) $4.45 per unitd) $0.45 per unit

Answer 1

a. $4.00 per unit

Step-by-step explanation:

Variable costs are those costs that varies with output level e.g labor cost, while fixed costs are those costs that do not change irrespective of output level. eg rent.

Given that ,

Total cost = $890,000

Total fixed cost = $800,000

Variable cost = Total cost - Total fixed cost

Variable cost = $890,000 - $800,000 = $90,000

Number of units = 200,000

Fixed cost per unit = Total fixed cost / Number of units

Fixed cost per unit = $800,000 / 200,000 = $4 per unit