A company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units.If the company uses cost-plus pricing, which of the following should the company use to determine the price?
A)The company should use a unit cost of $8.70 per unit only at a volume of 40,000 units.
B)The company should use a unit cost of $8.70 at any volume level.
C)The company should use a unit cost of $8.70 at any volume within the relevant range.
D)The company should use a unit cost of $6.50 per unit only at a volume of 40,000 units.

Question

Quizplus · Accepted Answer

Cost-plus pricing is a pricing method where a company adds a markup to its unit cost to determine its selling price. In this case, the company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units. 
So, the total unit cost is $6.50 + $2.20 = $8.70 per unit. 
Therefore, the company should use a unit cost of $8.70 per unit only at a volume of 40,000 units to determine the price using cost-plus pricing. This is because the fixed costs are relevant only within the relevant range, which is 40,000 units in this case. If the volume level changes, the fixed costs would also change, and so the unit cost would also change. Thus, option A is the best choice.

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